With a fixed
annuity, you make a payment to your insurance company and you then receive a
“set” or “fixed” payout. While many investors like the idea of a guaranteed
income stream, for others the “fixed” part seems just a little too rigid. But
that’s not necessarily the case.
All annuities
operate in essentially the same way: You sign a contract with an insurance
company. You pay the insurance company, and the insurance company then makes
payments to you at regular intervals either for a specified period of time or
for your lifetime.
From there,
annuities differ dramatically. Some annuities have variable payouts, meaning
they’re dependent on the performance of a portfolio of assets. Some investors,
particularly those nearing retirement and needing some stability, don’t like
the sound of a variable payment. Instead they opt for a fixed annuity, which
provides a set income.
A fixed
annuity payout may seem meager when the stock market is rising and investors
with variable annuities are receiving greater payouts. However, fixed annuities
may not be as fixed as they sound. For example, some fixed annuities are now
available with payments that rise to adjust for inflation. Other fixed
annuities allow an investor’s heirs to continue to receive payments if the
investor dies earlier than expected.
We can help
you determine if a fixed annuity is right for you. If it is, we will also be
able to advise you on the appropriate balance of income and flexibility for
your financial circumstances.
Annuity guarantees rely on
the financial strength and claims-paying ability of the issuing
insurer. The IRS may also impose a 10% penalty on withdrawals prior
to age 59 ½, depending on the circumstances.
