When planning for retirement, some people choose an annuity. It can help you take a large sum of money and arrange for consistent payouts. 53 percent of Americans are worried about outliving their savings. An annuity is one tool to help you plan for retirement.
What’s an Annuity?
An annuity is a long term, tax deferred investment. It is issued by insurance company and purchased by a financial advisor. There are four basic kinds of annuities. Immediate, Fixed, Fixed Index and Variable. Your financial advisor can help you find the best option for you.
A fixed annuity gives you a fixed interest rate so that your rate is guaranteed for a certain amount of time. It is a good choice for those who want a minimal investment risk while still offering a chance to grow money at a set interest rate. Some rates are offered for a fix period and then drop. From the time you purchase a fixed annuity until you retire and begin pulling money out, the investment does not participate in the market trading. Instead, your account gains steady interest. Withdrawal may trigger early surrender charges.
This is an alternative to placing your money in stocks, a bank CD or treasury bond. This option is for people who want to preserve the money they have saved but still receive a decent rate of return in the process.
A fixed annuity offers many features. It is tax-deferred plan where you will see an increased principle in your account. There is minimal investment risk, although the rates are generally higher than traditional saving vehicles. It offers guaranteed interest rates without exposure to market rates. Flexibility is built into a fixed annuity. You can choose from set payments or a lifetime stream. They generally have lower investment minimums as compared to other types of annuities. As with some other annuities, it gives you beneficiary protection. You can pass your accents to your beneficiaries and avoid extra costs.
If you are looking for a safe option for your money, a fixed annuity may be the route you want to take. It is important to discuss your options with your financial advisor to decide what is best for you.