It is extremely important that retirees who want to invest in annuities are well informed about the advantages and disadvantages of buying annuities before making such a decision. We will take a deep look at the pros and cons of fixed annuities and give you the opportunity to compare rates from different annuity providers.
Usually, fixed annuities require investors to deposit a fixed amount with the insurance company; and the get payouts periodically or as a lump sum at the end of a particular period. One of its major advantages is the fact that it is convenient for those who are not willing to risk their investment in the stock market as a result of its fluctuating nature. The risks attached tp investing in fixed annuities are minimal or sometimes even non-existent. With fixed annuities, you do not pay taxes on your investment until you make withdrawals. Investing in fixed annuities is a good option for retirees because it guarantees them a fixed source of income for life.
Another advantage is that you have rest of mind when you invest in fixed annuities because your rate of return is fixed and guaranteed; it is not subject to the instabilities of the stock or bond market. Also, an investor in fixed annuities has flexibility of options. He can choose the immediate annuity and as such start receiving payouts after a short period or the fixed deferred annuity where he receives a lump sum payment after a longer period of time. One other major advantage of the fixed annuity is that some insurance companies have a provision in the contract that allows your family or loved ones enjoy the benefits of the annuity in case of death.
On the other hand, one of the down side of buying a fixed annuity product is the fact that it costs relatively higher than other non-annuity options. Also, if you decide to increase your investment in annuities in the future, you have to buy a whole new annuity product because you cannot add to your previous annuity plan due to the fact that it is fixed. Furthermore, you are unable to withdraw from your fixed annuity until you are 59.5 years old. Premature withdrawals attract a penalty of 10% by the Internal Revenue Servcice of the United States.
The interest rates gotten from fixed annuities are relatively low when compared to what you can get from investing in other products e.g mutual funds. Due to the fact that fixed annuity plans may be too complicated to understand, people who purchase them without being properly informed may lose huge sums of money and end up dissatisfied with the product.
Having looked at a few pros and cons of fixed annuities, a proper evaluation of your needs will help you choose your retirement options accordingly.
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