Thinking About a Fixed Annuity?

Before you answer yes or no, do you know what it is? Most fixed annuities are deferred annuities.  This means you pay a lump sum amount to an insurance company and they pay you regular payments in an agreed upon time period (1 year, 10 years for example).  An imclipart_dollarsmediate annuity starts payments right away.  For example, you pay the company $100,000 and in ten years you get $700 a month for the rest of your life.

Why Do One?

The main benefit is that you lock in a fixed rate and get guaranteed fixed monthly payments.  If you are older and not earning any more income, this is a great piece of mind investment. You know that you will get guaranteed and secure income stream.  The money does grow tax deferred while you are waiting to receive the payment which means you don’t pay taxes on it after you bought the annuity until you start receiving payments.

Cons

It is important to know what you are getting into especially since they are mostly sold by insurance agents.  There is a penalty if you take the money out before a period of time or before age 59 and 1/2.   However, the biggest warning is that you should know you are locking in a fixed rate.  If you decide to buy one today, you are locking in a low fixed rate and chances are rates are going to rise very soon.  Also, if you do die sooner than expected, the payments of the annuity could be much shorter than you or your family had anticipated.  There are annuities that continue paying to your family.  These all have different costs.

Before You Buy One

Don’t invest all your money in a fixed annuity.  Remember diversification.  Shop around.  Visit http://www.immediateannuities.com/, call at least 3 insurance agents and check out Fidelity, Schwab and Vanguard.  Do NOT buy a variable annuity.  They are not guaranteed income and have very high fees.  While their value can go up dramatically, so does their risk!