For retired persons, the most attractive feature involving fixed annuities is the assurance that it'll provide a fixed income for life. Yet all investments have their good and bad points; fixed annuities are no different. Let's summarize some of the annuities positives and negatives and what the annuity company can offer.
Positives of Annuities
The three critical features of what the annuity company offers are tax-deferred accumulation, guarantee principal, and assured life income. The tax-deferred accumulation: in comparison to a similar taxed investment - allows for increased accumulation since profits are not taxed annually.
Annuities have been traditional vehicles for investment. Naturally you should always check out the financial stabi;lity of any annuity company you are looking at buying from. This data can be obtained form the annuity agent.
Using the guaranteed life income payment option, you do not have to think about market downturns that could deprive you of income. Any stable annuity company will pay you through good times and bad. Payments to you can be structure for life, so you cannot outlive them.
Negatives of Annuities
Because the annuity is a long-term investment with tax-deferred standing, the IRS will impose a 10% excise tax fee on any removal of funds before age 59½. This is not necessarily a negative of dealing with an annuity company, just a feature of the tax laws.
Annuity costs can reduce any distributions taken early in the buildup years. So anticipate holding your annuity to the end of its term so you never have surrender charges. Generally, there are no fixed costs imposed by any annuity company on traditional fixed annuities other than the surrender charge (indexed annuities have more complex charging schemes).
Because your money is placed with an annuity company in an annuity contract with a stated term, you may have no control of the rate of return on your investment. When you purchase, find an annuity company that has a good reputation for providing competitive results over time. In fact, know that there are two types of fixed annuities: those that have a rate that changes annually and 'CD Type' annuities that provide fixed interest guarantees that can last several years.
Although using a fixed annuity, you have eliminated the potential for market risk on your own investment , you have created the chance of diminished purchasing power. After beginning installments, you will not be allowed any adjustments in the case of higher inflation rates as your annuity company payments are fixed.
If you decide to have the annuity company annuitize (annuitize meaning "take payments," not a selection you must take), selecting a lifetime income leaves no residual investment for the heirs. You can select options that resolve this, but at the expense of a lower month-to-month payout to yourself. Of course, the key element on the list of annuities positives and negatives would be the fact you choose how to take your dollars out based on your own personal desires.
Learn more about what most annuity company can offer at the Annuity Blog.
|What the Annuity Company Offers