Understanding Fixed Rate Annuities
A fixed rate annuity is an interest earning product designed for retirement savings that can provide a steady, fixed income amount for the rest of an investors life. The annuity requires a person to deposit a lump sum cash amount, usually beginning at a minimum of $5,000 up to $1,000,000, which will lock in an interest rate for a period of at least one year or up to ten years.
The amount of the deposit plus any interest earned then gets distributed back to the investor either in immediate monthly payments or the payments can be deferred to the end of the annuity term which allows the interest to compound.
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One of the major benefits of choosing fixed rate annuities is that it guarantees peace of mind for the investor. At the point where the money is invested the fixed annuity rate is locked in for the life of the annuity so there is no need to watch the markets or be concerned during economic downturns. The user also has the benefit of having the flexibility to choose from distribution options that best suit their income needs. The different options allow the possibility of an immediate fixed annuity which starts issuing monthly payments right away or deferred annuities that don't start payments until the end of the term. The user can also elect to receive payments for a fixed period of time, or to choose payments that cover their lifetime so they have a guaranteed income that they will never outlive. Fixed rate annuities are a very low risk savings instrument that generally offer higher rates of return than other low risk investments such as bonds or treasuries. This makes them an ideal savings tools for retirees who need low risk and guaranteed rates of return during the later years of their life. An alternative to fixed rate annuities is a variable rate annuity. In a variable annuity the invested amount is divided between different funds such as stocks and bonds. The amount earned depends on how the funds perform meaning the rates for this type of annuity vary with market performance. Compared to this, a fixed rate annuity is more suitable for a person who has a more conservative investment stance. Someone who wants low to almost no risk and a guaranteed return. Fixed annuity rates are higher over a longer term and will differ between companies but the best rates are currently being offered at slightly over four percent. This is an excellent rate of return considering some variable annuities over recent years have made a zero percent return for the investor. |
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