Fixed Annuities Work As Retirement Savings Plans

Insurance companies issue annuities, a form of investment that are generally offered via Insurance brokers. Once an investor pays into the annuity, the annuity earns interest for a set period of time. With fixed annuities, the capital invested is guaranteed. They are a safe, popular and tax-deferred way to increase your wealth.

Several factors are used to structure annuities such as changing the time period of money deposit, changing the number of income payments and others, etc. A fixed annuity offers security to the investor as the issuing company confirms a minimum interest to the investor for a set period of time beforehand. Often, with fixed annuities, policyholders can get a minimum benefit payment as well. Thus, in the case of a fixed annuity, the investor already knows the expected return from the annuity before signing the contract.

A fixed annuity can be funded with one large payment, or with a series of payments over time. Returns on traditional fixed annuities do not rely on increases in the stock market or other equity investments and funds are guaranteed to grow. There is a stable interest return and future cash flow from the annuity to the investor.

There are options for how fixed annuities are paid out. With immediate payment annuities, the investor makes a lump sum premium deposit and immediately receives fixed monthly income payments. This is a good way for an individual to turn a lump sum into a retirement income stream.

With tax-deferred annuities, the investor either deposits a lump sum and accumulates interest over time, or makes payments into the annuity, with the returns being paid out after a set period of time. This kind of fixed fixed annuity is often used as a retirement savings plan. Many individuals fail to plan for their income needs in retirement. In many cases a fixed immediate income annuity can fill the gap.

- Nick Jameson

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