6 Benefits Of Fixed Annuities
by Arnab Dey Finance 15 March 2023
Fixed annuities are a stable and reliable type of investment that can help provide for your needs during retirement.
If you’re unfamiliar with annuities, you may not know all the perks that come with this product. Here are six outstanding benefits of fixed annuities.
Here Are Six Advantages Of Fixed Annuities
1. Low Risk
Fixed annuities are safe from market volatility, which is often a barrier to investing. Individuals who are risk-averse may shy away from many investment opportunities. However, fixed annuities carry none of this risk, making them a safe and stable option for investors who want a reliable way to provide for themselves in retirement.
Some fixed annuities are so low risk that they can guarantee regular payments until the death of the annuitant or even the annuitant and their spouse. A life-only annuity will provide regular payments as long as the annuitant lives, even if the initial investment runs out. This means that you could receive more than the accumulated value of the annuity.
2. Tax Deferred Investments
You don’t have to pay taxes on the money that you invest in an annuity until you withdraw it. If you allow the annuity to fully mature, you’ll get the optimal benefits from it. If you have to withdraw the annuity before you’re 59-1/2 years old, however, you will have to pay a 10% federal tax penalty. This is why annuities are used primarily for retirement funds when you’re confident that you won’t need the funds sooner.
3. Reliable Returns
Annuities pay out on a set schedule providing the annuitant with regular income once the annuity enters the payout period. When you set up your annuity, you can review all the details of this investment, including the payout schedule and terms. In most cases, you will pay into the annuity over a period of time, then leave the funds to mature. You will enter the payout period once you’ve entered retirement.
Depending on the terms of your annuity, you might receive a set number of payments. This gives you complete predictability over what you will get back and over what time period. If you have a life annuity, you will get payments throughout your entire life. This provides the ultimate peace of mind, as you will know that you have a regular sum of money coming your way every year for the rest of your life.
4. Guaranteed Rates
The rates that you’ll enjoy with fixed annuities are typically higher than those for certificates of deposit (CDs) and savings accounts. With a fixed annuity, the interest rate doesn’t rely on the stock market, as it will with a variable annuity. A multi-year guarantee annuity (MYGA) maintains its initial rate for a set period that lasts between three and ten years. After this point, you can elect to renew the annuity at a new rate.
Fixed index annuities do change marginally based on the market index, but they still have a minimum rate that they cannot fall beneath. These annuities also limit the index rate to a certain percentage of the market index to ensure that the payments remain manageable for the insurance company providing the annuity.
5. Safety
Fixed annuities are typically provided by insurance agencies, and these companies have a significant claims-paying ability, which makes it possible for them to pay out reliably on all annuities. Additionally, fixed annuities are typically backed by state guaranty associations that will cover the value of the annuity up to a certain amount in the event that the annuity provider becomes insolvent.
6. Flexibility
One of the primary benefits of investing in a fixed annuity is the potential for flexibility. As you’re shopping for an annuity, you’ll find that there are several different options you can choose from.
If you need to begin accessing the investment quickly, you can opt for an immediate annuity. This will begin producing payments immediately. If you can afford to wait for your payments, you can opt instead for a deferred annuity.
You’ll find flexibility in the time frame for your annuity payments as well. Some annuities only last for a set period of time, while others are good for life. A life annuity may cover only the annuitant or the life of both the annuitant and their spouse.
Your annuity might pay into an estate or to a beneficiary after death if benefits remain. With so many options, you can customize your investment to meet your retirement needs and budget.
If you’re looking for a low-risk investment to add to your portfolio, a fixed annuity is worth considering. Use this to safely diversify and help provide for your retirement.
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