Fixed annuities are essentially like investments issued by insurance companies, they pay guaranteed rates of interest. Fixed annuities can be deferred or immediate. The deferred variety accumulate regular rates of interest and the immediate kind make fixed payments – determined by your age and size of your annuity – during retirement. The convenience and predictability of a set payout makes a fixed annuity a popular option for retirees who want a known income stream to supplement their other retirement income. Because the risk is low, returns on fixed annuities are also low. Though there are alternatives to the fixed annuity, during unstable economic times, fixed annuities gain favor with investors as a secure way to receive fixed income. Investors in annuities are often referred to as annuitants.
Fixed annuities require an initial investment, which in turn earns interest over the accumulation period. The accumulation period is the time during which the investor contributes money to the value of the annuity. The length of the accumulation period is specified by the seller of the fixed annuity. The accumulation period is followed by the annuitization period, during which the investor receives fixed payments at regular intervals. A fixed annuity requires fixed payments over a specified period of time until termination. The time period between payments is typically monthly, quarterly or yearly. It should be noted that any interval of time can be used for payment of fixed annuities, you can discuss the options with your broker or agent.
The two chief forms of the fixed annuity are life annuities and term certain annuities. These two types of fixed annuities represent insurance contracts. A life annuity features payments every period until the death of the annuitant. Unlike the life annuity, term certain annuities have a definite expiration date. Payments are made each period until expiration, which can often be before the annuitant dies. Some fixed annuities have a stated rate for the life of the contract. These are often referred to as multi-year guarantees. That means that the rate is pre-determined for the life of the annuity contract. There will be no surprises (for the most part concerning the rate) and the return should not change (unless the company has a contractual right to do so. These can be a good deal for consumers in a falling interest rate environment.
An annuity can also help make things easier for your spouse or children if you die. Usually, your estate would have to go through a legal process before your beneficiaries can access it. With an annuity, they won’t have to wait. If this happens before you start receiving annuity payments, your beneficiary will get a “death benefit” that usually equals the total value of the annuity. If you’ve already started to receive payments, the remaining guaranteed payments will go directly to your beneficiary.
Reasons for considering a Fixed Annuity:
You want the security of principal protection and guaranteed rates.
You’re concerned about outliving your money.
You’re changing jobs or retiring.
You don’t want to manage large amounts of money on your own.
You make sure your spouse or children are taken care of financially.
If any of these factors apply to you, a Fixed Annuity is a type of financial planning you should definitely be considering. In these risky financial times, a fixed annuity can turn out to be a better investment decision than stocks and bonds. In fact, they may turn out to be a better fit for your particular needs anyway. Annuities are a great way to hedge your investment risk and be a bit more conservative; toning down the risk you are currently exposed to in your portfolio. Depending on your needs and age, you may decide that it would be best to use an annuity for retirement. If you are 55 and over you can use an annuity to obtain monthly payment for as long as you live. In any case, it is always a good idea to consult your financial planner.
12-327 Croydon Tramlink Stadler Variobahn No. 2555 skirts ‘No. 1 Croydon’ en route to West Croydon on Route 1
Image by Hectate1
Taken 05/12/12: ‘No. 1 Croydon’ my foot, the backdrop is, of course, the NLA Tower; Noble Lowndes Annuities being the precursor to Hill Samuel Life.