How to Use Fixed Annuities for Retirement Savings
WITH THE GLORY DAYS OF corporate pensions in the past, fixed annuities can serve to augment retirement income from other sources such as Social Security payouts and employer-sponsored funds.
A basic fixed annuity is a contract between a person and a provider – such as an insurance company, independent broker or bank – that guarantees the principal invested, a minimum interest rate and set payouts for the life of the annuitant.
An annuity contract can be for varying lengths of time, such as one, five or 10 years, with a payout phase starting sooner or later depending on whether the annuity is immediate or deferred. (This type of fixed annuity, an income stream that is the focus of this guide, is different from fixed indexed annuities, which can also offer principal protection but credit interest based on the fluctuations of an equity index such as the S&P 500. Check out our thorough discussion of fixed and variable annuities, immediate annuities, deferred annuities and other types here.)
"Simply put, with an annuity product, you are entering into a contract with an insurance company to create your own pension," says Arvind Ven, CEO of Capital V Group. If you're interested in the guaranteed income provided by a fixed annuity, here are a few points to keep in mind:
How fixed annuities work.
How fixed annuities differ from variable annuities.
Risks of fixed annuities.
Click here to read the full version of this report.
Fixed annuities are long-term investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Fixed Indexed Annuities (FIA) are not suitable for all investors. FIAs permit investors to participate in only a stated percentage of an increase in an index (participation rate) and may impose a maximum annual account value percentage increase. FIAs typically do not allow for participation in dividends accumulated on the securities represented by the index. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. " "Variable Annuities are suitable for long-term investing, such as retirement investing. Withdrawals prior to age 59 ½ may be subject to tax penalties and surrender charges may apply. Variable annuities are subject to market risk and may lose value." "CDs are FDIC insured to specific limits and offer a fixed rate of return if held to maturity. Annuities are not FDIC insured. Annuities are long-term, tax-deferred investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Withdrawals made prior to age 59 ½ are subject to 10% IRS penalty tax. Surrender charges apply. Guarantees are based on the claims paying ability of the issuing insurance company.