Explain Annuities - Fixed Retirement Annuities

What is a Fixed Annuity?

These are marketed by insurers, and they combine aspects of both insurance and investments.

Fixed Annuity vs Variable Annuity

We will discuss fixxed annuities, and not variable annuities. Variable annuities are riskier products (that could have higher returns), but are beyond this discussion. Now let us explain fixed annuities.

People like fixed annuities because of their safety. They are intended to help the owner reach a future financial goal. Common examples are retirement savings or a college education fund.

You can find a lot of payout options, but lifetime payouts attract many annuity owners.

The owner may have a set return rate on their money, or that return may be tied to some type of market indicator. The S&P 500 stock market is one very popular example. When the stocks go up, the fund will earn more money.

Of course a major selling point of fixed annuity products are guarantees that they will not lose money during down years. Some may have a guaranteed return of 2%, or even 0%. This is better than a negative return rate. Make sure you understand the return guarantee of the annuity you are considering.

One other big point in favor of this type of product is favorable tax treatment from the IRS. The cash, and compounding, can grow tax deferred. And depending upon the IRS status of the fund, payments may also get a better tax treatment than some other types of investments.

You need to find the right annuity for you.

The amount of time you can do without your money, how long you want to get paid, and home much income you need to generate are a few of the things to weigh.


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