Advantages of Fixed Annuities

Advantages of Fixed Annuities

Advantages of fixed annuities are endless.  Fixed annuities are referred to by many different names:  tax-deferred annuities, CD-type annuities, traditional fixed annuities, bonus annuities, fixed indexed annuities, and equity indexed annuities.  All these types of annuities are similar in nature.  The one thing these annuities have in common is that they are all fixed.  As long you as you hold it until maturity you have no risk of losing any money whatsoever.  There are many advantages to owning fixed annuities, most notably these advantages are:  tax deferred, higher interest rates, safety and guarantees, withdrawal flexibility.

1.  Tax Deferred - During your annuity contract your account will be credited with some amount of interest.  Since the insurance company is crediting your account and not a bank the interest that you earn is deferred until later.  As the owner of the annuity the only time you pay taxes on the interest is when you decide to withdrawal for some other purpose.  People often keep their money in fixed annuities for extended periods of time to avoid taxation on the interest they don’t need.

2.  Higher Interest Rates - Generally fixed annuities are used as an alternative to CD’s and treasury bonds.  One of the main attractions is the higher interest rates.  Since these are contracts with insurance companies and not with banks or the federal government they can afford to pay slightly higher rates than traditional CD’s.  For example today May 18, 2010 the national average for CD’s on www.bankrate.com is 2.12%, while we can offer 3.65% on a comparable 5 year CD type annuity.

3. Safety and Guarantees - The value of your fixed annuity is backed by an insurance company, not a bank or government agency.  This is an important distinction to make when dealing with annuities.  All guarantees are backed by the full faith and credit of the issuing company.  In addition many states have guarantee associations to cover consumers in the event that an insurance company becomes insolvent.

4.  Withdrawal Flexibility - Another key advantage that fixed annuities offer is withdrawal flexibility.  unlike most CD’s that allow you to withdrawal only the interest each year, many fixed annuities offer the ability to withdrawal 10% - 15% per year without any penalty whatsoever. Talk to one of our insurance professionals about the withdrawal flexibility of specific products.

Is a split annuity worth it?  There has been a lot of talk recently on split annuities.  A split annuity is where you take half the money you have to invest and purchase a period certain annuity for 10 years.  Invest teh other half in a fixed or fixed indexed annuity for 10 years.  When the 10 years is up you take the balance from your fixed or fixed indexed annuity and purchase a life annuity with that money.

Why would you do that?  Simple, you make more income over the long term.  Lets suppose that someon is 65 years old and need lifetime income, and suppose they have $500,000 to invest.  If they were to purchase a straight life annuity for $500,000 that guarantees $27,000 per year for ever.  Instead suppose you purchased an annuity for $250,000 that would guarantee payouts for 10 years at $27,000 per year.  You would then invest the other $250,000 into a 10 year fixed annity at 5%.  In 10 years you would have $407,000 to withdrawal.  You would then purchase a life annuity for $407,000 that would provide income for life.  Since you are now 10 years older this annuity might pay $34,000 for the rest of your life.  By splitting your annutiy purchases you can guarantee and increase your monthly income.   Just an idea.  for more information call us at 888-515-7152 or email us at ryan@annuityrateshopper.com