Deferred fixed annuity refers to the annuity that has a guaranteed fixed rate for a stated period. When someone buys one, his or her money is placed in the general account of the issuing company. Many situations depend on the annuity contract shared by the annuitant and the annuity company. The company might adjust the rate periodically. That is why the best time to buy an annuity is when it offers a high interest rate. There is also a specified interest rate backed up by the insurance company for a specified period. Some insurance companies may guarantee different interest periods with varying interest rates. Again, this is all written in the contract. The buyer must always make sure to read it carefully before buying it.
Depending on the contract, other options are laid for the annuitant. Like for example, some give withdrawal options. Some may allow surrendering the annuity contract without paying a surrender charge.
Deferred fixed annuity may offer a guaranteed minimum rate of interest. Once the rate is set for the period, it will not be subject to fluctuations brought in by market interest rate or the investment’s previous performance. However, deferred fixed annuity also offers only a little flexibility. There will be no adjustment for inflation and the potential for growth is lesser than other annuities like deferred variable annuity.
Imagine saving up in a piggy bank. That is what deferred fixed annuity looks like. The will be collected during the accumulation period which will grow the tax deferred. When the contract’s expiration comes which is usually after 5 to 10 years, the accumulation phase ends and the dispersion of money starts. Payment could be dispersed by either in a lump form of money or in smaller monthly payouts. The annuitant can also choose to continue the annuity contract with a new rate and within a new period.
Even though deferred fixed annuities originally intends to accumulate money and let that money grow without interest until the accumulation phase ends, premature withdrawals are still permitted by most companies. A withdrawal allowance of 10% is given to the annuity holder every year by some companies. This means that, 10% of the accumulated income can be withdrawn without incurring penalties from the IRS.
When is the right time to buy a deferred fixed annuity? Who should buy it? Deferred annuities and immediate annuities are designed to fulfill different purposes. Immediate annuity is appropriate if someone requires a consistent monthly income, as for retirement. Deferred annuity may be a better option for someone who does not need the money right away and want to stash it for the future use after retirement. If a person is already retired and wants to buy annuity, the choice is up to him depending in his or her situation. When he or she needs a steady monthly income, then, immediate fixed annuity is what he or she needs. If he or she just wants to save for his or her retirement or does not need the money for that time, deferred fixed annuity might be one of the best choice that he or she can opt for.
Fixed annuities like deferred fixed annuity should be viewed as conservative and suitable for those who are nearing retirement or already retired. Click here to enter your zip and to start determine if deferred annuities meet your savings goal. Start comparing now.