Fixed Annuities

Imagine, if you will, building a retirement savings for 45 years only to have a large portion of your nest egg eaten by market volatility when you are just 6 months away from your long-anticipated life of leisure.  Unfortunately, for many Americans, this nightmare scenario has become reality all too often during the last 5 years.  The result is that more and more individuals have been forced to continue working well into retirement age as they fear “outliving their money”.

There is, however, an investment product known as a Fixed Annuity that allows for a guaranteed rate of return and tax deferred asset growth.  It offers protection against the loss described above.  Here’s how it works:

Deferred fixed annuities are issued by insurance companies and offer a rate similar to a bank CD.  Terms of the contract may vary depending upon the length of the contract and the life expectancy of the client. Money may be invested over a period of time or as a lump sum at the commencement of the contract.  The annuity normally becomes fully liquid based upon the surrender schedule or upon the owner’s death (the deferred fixed annuity can be inherited) but this will depend on the type of contract.  Taxes are only due when money is withdrawn from the contract.  At death, the beneficiary may have the option of continuing the contract and thereby deferring the taxes.    The advantages of this product for the retiree are the likelihood of a lower tax bracket upon retirement and the fact that they are guaranteed to avoid the losses that plague traditional investments.

There may be contract provisions that allow the early withdrawal of a small percentage of the interest and/or principal without penalty, but early cancellation of the policy will result in penalties.  These penalties could cause the investment to have a negative return.  However, barring early termination, the deferred fixed annuity owner is not at risk for loss.

Although these products are guaranteed, it is important to seek out proper advice and become fully informed before making any financial investment. Taking the time to become educated on deferred fixed annuities could provide you with peace of mind heading into retirement.


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