Having a plan in place for outliving one’s assets or supporting oneself through retirement is essential. At Top Investment Solutions, we know that for those near and at retirement age, annuities can be a key part of one’s financial plan. If you’re exploring different annuity types and benefits, you may have questions about fixed annuities. Consider the following information about fixed annuities, and reach out to our expert team at Top Investment Solutions directly for more information.
Before diving into the details of a fixed annuity, it’s important to understand what an annuity is. An annuity is a financial contract between an annuity holder and an insurance company or financial institution that states that the holder will pay premiums or make a lump-sum payment in exchange for payments that make up a stream of income in the future. There are multiple different types of annuities, including both variable and fixed annuities.
In contrast to a variable annuity, a fixed annuity promises to pay the purchaser of the annuity a fixed, guaranteed, and specific interest rate on any contributions made to the annuity account. In a fixed annuity, any earnings are tax-deferred until the account holder starts to receive income from the annuity. The payout phase from the annuity may continue for the rest of the account holder’s life or a specified number of years.
The biggest benefit of a fixed annuity is that returns are fixed; there are no surprises, and the performance of sub-accounts won’t impact the rate of return for the annuity. Predictable investment returns can be a comfort for someone who is living on a fixed income after retirement and doesn’t have much flexibility in their budget or stream of income. While annuities held by an insurance company are not federally insured, the contract does hold the company responsible for the security of the money invested, which means there is a relative level of safety of principal contributions.
One drawback of an annuity is that it’s considered to be illiquid, which means that it’s not a good option for those who may need emergency cash. Another disadvantage is that because returns are fixed, they don’t have the high earning potential that variable annuities may offer. There are also typically early withdrawal penalty charges associated with fixed annuities and IRS penalties for withdrawal before a certain age. It’s also important to understand that while annuities typically are considered reasonable financial products for those nearing retirement age, they are not recommended for younger people or for those with higher liquidity needs.
At Top Investment Solutions, we offer multiple types of annuities and can answer your questions about variable annuities, fixed annuities, and more. If you want to learn more about annuity contracts, our team is here to help. We serve clients nationwide and can answer your questions today. Call us directly or send us a message online to get started.
This material is not a recommendation to buy, sell, hold, or roll over any asset, adopt an investment strategy, retain a specific investment manager or use a particular account type. It does not take into account the specific investment objectives, tax and financial condition or particular needs of any specific person. Investors should discuss their specific situation with their financial professional.
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