Top 5 Reasons To Purchase a Fixed Annuity

Whether you’re preparing for retirement or looking to expand your financial portfolio, an effective way to build wealth is by purchasing a fixed annuity. Annuities work by establishing a contract between you and an insurance company where you contribute money and the company pays you a steady stream of income. You can either contribute the entire investment at once or make payments in regular installments, and details like the payment schedule and the period for which you’ll receive income will be stipulated in your contract.

Fixed annuities provide several benefits, all of which can help you increase your retirement savings. Here are the top five reasons to purchase a fixed annuity, along with some additional details to consider before purchasing one.

Guaranteed Returns

One of the greatest perks you can enjoy when you purchase a fixed annuity is the guarantee that you’ll receive a return on your investment. Since the insurance company you enter a contract with is responsible for providing the income you agree on for the entire period of your annuity, you can be certain of how much money you’ll receive each month. Even if you make other investments that don’t see great returns, you can rely on the income from your fixed annuity regardless. This gives you even more financial freedom to explore potentially lucrative opportunities.

The guarantee of a return you get with a fixed annuity also helps save for retirement. As you’ll know exactly when you’ll receive payments and how much money you’ll get, you can make an accurate budget that supports all of your expenses. This makes it easier to predict how much retirement capital you’ll have once you leave the workforce, so you won’t have to scramble to manage your finances.

Extra Income in Retirement

When you’re investing for retirement, it’s often best to have multiple streams of revenue to support you, since you won’t be working full time. It always helps to have extra income, and the steady payments you’ll receive when you purchase a fixed annuity provide a great way to secure it well into your retirement. With annuities having a huge selection of term periods, from 10 years to the entire life of the annuity owner, you’ll be able to guarantee that you always have money to support yourself, no matter how long it’s been since you retired.

Customizability

Another massive benefit that comes with fixed annuities is the wide array of customizable features they have. When you buy a fixed annuity, you’ll design a contract specifically for your needs. This includes details like the period for which you’ll receive payments and the amount of each payment.

Some annuities even allow you to add additional provisions that offer coverage to your surviving heirs or spouse, such as a death benefit. You can also sometimes purchase a joint and survivor annuity that continues to pay a regular income to your spouse after you pass, even if you’re the primary owner.

Tax-deferred Growth

Paying taxes is a key consideration with many types of investments, and fixed annuities are no different. However, when you purchase a deferred fixed annuity, you won’t owe any taxes on the interest that will compound on your investments. This means you can schedule your withdrawals for years in advance, preparing you for retirement and deferring your income tax until then without losing out on the growth you’ll get from your fixed interest rate. By doing this, you’ll also likely pay less in income tax, since you won’t be working full time.

Special Considerations

Although fixed annuities have many benefits, there are a few details to consider. Some annuities come with high fees, so it’s important to compare different options and read each contract in its entirety before signing to avoid surprise costs. Additionally, annuities typically come with surrender fees that apply if you end up needing to withdraw money from your annuity before the stipulated amount of time. If you’re under the age of 59 and a half, you might also encounter a penalty for withdrawing money early, typically around 10% of the entire amount of the withdrawal.

Another detail to think about before purchasing a fixed annuity is how important it is to you to be able to take advantage of newly lucrative markets. Since a fixed annuity’s terms are set for years, you won’t see any benefits if the market starts improving. 

These are the top five reasons to purchase a fixed annuity. With a promise of steady income into your retirement and guaranteed returns, fixed annuities can be a great way to balance your finances and find stability.