There are a variety of annuities that you can choose from depending on your financial needs. If you are one of those conservative types of investors who want security for their savings and a stable source of income that you will never outlive, then a fixed annuity is an investment type you would want to check out. Fixed annuities are basically contracts made between you and an insurance company wherein the company will guarantee you a steady flow of income on a date specified in the contract.
Like all other types of annuities available in the market, fixed annuities are usually used as a means of providing the investor with income by the time they are retired. You will also have the benefit of tax-deferral on your saving. This means that all the interest that has been accumulated by your investment is free from tax until the time you start making withdrawals. With this benefit, you are able to save more and receive more from your annuity.
Fixed annuities, also called fixed rate annuities, have two phases: accumulation and distribution phase. During the accumulation phase, a lump sum amount of money or a series of payments are made to the insurance company. The money that has been invested will then be growing on an initial fixed rate that may last for a year or five years. Once this initial period is over, a new rate will be declared by the company every year. This will allow a predictable and stable income on your investment.
By the time the annuity has reached its maturity, the distribution phase begins. Here, the insurance company will start paying you back in monthly payments using the money you have invested plus the interest it has earned. There are actually two types of distribution methods to choose from in a fixed annuity – immediate and deferred. With the immediate distribution method, you will start receiving payments immediately after you have paid the insurance company. On the other hand, the deferred distribution method will postpone the supply of income on a later date, usually by the time your retirement has started.
Even if you feel that a fixed annuity is the right investment for you after reading what was said above about fixed annuities, it is still important for you to assess your current financial situation and also your needs. Insurance agents and financial advisors can better aid you in checking if a fixed annuity is best for you. Just make sure the people you seek help from are certified and reliable.