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Fixed Annuity
What is a Fixed Annuity?
Benefits of a Fixed Annuity
Fixed Annuity vs. Certificate of Deposit
Fixed Annuity
What is a Fixed Annuity?
An annuity is a contract issued by an insurance company which
guarantees a specific rate of interest for a specific term. Annuities
may offer income tax and interest rate advantages over other saving
vehicles like CDs and money market accounts. Historically, fixed
annuities have credited competitive rates of interest.
Benefits of a Fixed Annuity
No Investment Risk - When purchasing a Fixed Annuity
it is important to note that the insurance company providing the
contract accepts 100% of the investment risk. Often, the insurance
company guarantees a stipulated rate of interest for a specific
term, usually 1,3,5,7 or 10 years.
Tax Deferred Growth - Fixed annuities are similar to IRAs
and other retirement accounts in that they offer tax-deferred growth.
This is an important advantage that other safe savings vehicles
may not offer.
Fixed Annuity vs. Certificate of Deposit
When considering whether to place money in a Certificate of
Deposit (CD) or a Fixed Annuity (FA), it is very important to consider
your specific financial situation. Each of these investments has
distinct features which may or may not be appropriate for every
investor. When making your choices, you should consider the length
of time you have to invest, the amount of risk you can assume, and
the rate of return you will receive. The following comparisons of
each option may be helpful.
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Features
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FA
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CD
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Free from stock market risk?
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Yes
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Yes
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Tax deferred earnings?
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Yes
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No
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Able to make additional payments to the same account?
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Yes
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No
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Social Security tax liability minimized or eliminated?
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Yes
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No
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Penalty free withdrawals?
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Yes
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No
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Funds not reduced by commissions?
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Yes
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Yes
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Able to avoid probate?
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Yes
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No
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Able to provide lifetime income with tax benefits?
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Yes
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No
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