Fixed Annuities Work As Retirement Savings Plans
Annuities are issued by Insurance companies as a type of investment contract. They use Insurance agents to offer these policies to investors, who pay into the annuities. After a set period of time, the investor gets a return on his investment. When the annuity is fixed, the principle is guaranteed. Annuities are a safe way of investing to accumulate wealth, they are tax-friendly and are often used as retirement savings plans.
A fixed annuity offers you a predictable rate of growth for your investments, and guaranteed future income. You won’t experience the swings in value that you would see if you put the same money into the stock market. And, you have the choice to make one single upfront payment, or to make fixed payments over time.
Annuities can be structured in a number of ways; varying accumulation period, length of income payments and other factors. Investors get the security of a fixed interest rate when they choose a “fixed annuity” option. Issuing insurance companies guarantee a minimum interest rate for a set period of time with a fixed annuity option. Most of the companies also pay a minimum benefit. Since the payout is fixed over a period of time, investors are aware of the expected income over the payout period.
One option for an individual with fixed annuities is to choose an immediate income annuity. After making a lump sum payment, the investor then receives immediate fixed monthly returns, thus turning a lump sum into a retirement income stream.
With deferred payment annuities, investors have an option of either depositing a lump sum which accumulates interest over time, or make payments into their annuities, with the maturity value being paid out after a fixed time. This is a form of investment which is popularly used as a retirement savings plan to fill the income gap created after leaving regular employment.
- Gary Denison
