The Fixed Annuity is an interesting insurance vehicle for the conservative
or risk averse client. The behavior of a Fixed Rate Annuity is often compared to that of
a CD. The advantages of a Fixed Annuity are generally more favorable
for those that wish to accumulate long term, are looking for safety
from market risk or have already reached or are nearing retirement age.
Following are some of the
advantages of Fixed Annuities:
Annuity earnings grow tax
deferred until withdrawn, reducing your current taxes and allowing your
money to grow faster. This is an added benefit if you are in a lower tax
bracket when retirement income payments begin.
Protection of Principal
Unlike other investment
vehicles, the principal of the account is protected from downward loss.
Variable annuities, securities and other investments can lose value.
The Fixed Annuity has a fixed interest rate, independent of market
Fixed Interest Rate
A Fixed Annuity guarantees a
fixed interest rate for a specific period of time. A minimum
interest rate is guaranteed for the life of the contract.
Opportunity to Annuitize
One of the more obvious
features of an annuity, the opportunity to annuitize, shouldn’t be
overlooked. Distributions can be spread out over a set period or
may continue for the life of the annuitant and beneficiary.
Credit Protected (depends)
In some states and depending
on the vehicle, the Fixed Annuity is probate and creditor protected.
In protected states it can also be protected against frivolous lawsuits.
This again provides another level of security for the annuity.
Lifetime Payout Provisions
Worried about outliving your
income? The Fixed Annuity can be established to provide a
guaranteed income for the life of the annuitant and beneficiary.
This again provides safety and peace of mind.
Not Vulnerable to Market
Can you say “recession
buster”? Because of the fixed rate nature of the annuity, the
investor need not worry about account values during periods of
Access to Money
Most annuities allow
withdrawals at least once annually (usually up to 10% of the contract
value) without a withdrawal or surrender charge. Monthly
withdrawals of interest and free withdrawals for special needs such as
confinement to a nursing home are also widely available.
A beneficiary receives the
annuity’s entire account or contract value upon the death of the
annuitant. Provided the annuity is properly structured, your
beneficiary can avoid the delays, expense and publicity of probate.
If you’re taking full
advantage of employer plans and IRAs, a Fixed Annuity’s combination of
unrestricted contributions and tax deferral can be a retirement boost.
In addition, non-qualified annuities do not require you to take
distributions at age 70-1/2, allowing your money to continue
Only an annuity issued by an
insurer offers retirement income guaranteed to continue for as long as
you –or you and your spouse – live.