Fixed annuities are gaining in popularity particularly among retirees and senior citizens. As an investor, you'll be able to decide how long you must secure your money. With a fixed annuity, you cab start taking payments today, defer them to late and then decide for how long a period you desire to enjoy annuity income
But some people are reluctant to invest in an annuity because traditional fixed annuities are not short-term investments. As people age, they prefer short term investments but that is a mistake. Longer term investments provide more income. And so it is with annuity income. In general, the longer the term you agree to, the more annuity income you wll receive. And that benefit is the security of continuous annuity income for the entire duration of the contract.
CD-annuities (more familiarly termed as multi-year guarantee annuities) offer uniform annuity income for the policy term. These types of annuities are typically offered with terms of 3 years to 10 years.
When the term finishes, you will usually be offered a 30-day window to make a decision. You can do any number or things:
- close the account and withdraw your funds (most people don't like to pay all the tax at once)
- take withdrawals whenever you like and let the annuity stay at the "open rate" (usually not very high)
- renew the annuity for the current rate for another multi-year term
- annuitize--get regular annuity income (e.g. monthly) for a term you specify from 5 years to lifetime
Like all other conventional annuities, the earnings are certainly not subject to income tax as long as the interest remains in the account. What this means is, you will not receive a 1099 form to file with the Internal Revenue Service every year and nothing gets reported on your tax return. Also, you need not concern yourself with income taxes if you renew the contract following the expiration of the term. If you die while the CD-annuity continues in-force, your heirs will get the account's value rather easily without going through probate. Your heirs will also gain the choice to avail a one time payment, or an annuity income over time. Nonetheless, investors are advised to seek specialist opinion from tax and financial experts before making any investment decisions to maximize annuity income.