A Consumers Guide to Buying a Fixed Annuity

Most people thinking about their future always would like to think about availing of some attractive financial products that will effectively be able to provide additional income for them as well as their families especially at the time of their retirement. This will take some time to consider most especially in trying to choose which will provide the best option depending on one’s situation or circumstances. Among the products available out there are a host of annuities.

For your information, an annuity is simply an agreement for an organization (an insurance company) to pay another an income stream in the form of regular payments in exchange for investment given in the form of premiums. There are various types of annuities that people can choose from. One of those choices is fixed annuity.

In a fixed annuity, an individual receives a fixed and guaranteed regular income for the term of the agreed contract. This term usually covers the duration of the individual’s life. Fixed annuities also provide a guaranteed interest rate for the investment sum of the policy. The advantage of a fixed annuity contract is that it has a cash surrender value which can be availed in partial amounts or in its entirety before or during the annuity period.

In a fixed tax-deferred annuity, the individual is allowed to invest in a annuity with an accumulation period wherein taxes on earnings are deferred or delayed until a certain term. The advantage of this is that it allows your investment to grow faster because it earns an interest on the money that you would have otherwise pay to taxes every year. The individual benefits from compounding of the tax-deferred earnings, that is, until he makes a withdrawal or begins receiving his annuity income.

Fixed tax-deferred annuities are safe as investment income especially for people planning for their retirement. Every qualified life insurance company issuing such tax-deferred income investment instruments are required to meet its contractual obligations. This is made possible by companies establishing reserves that should be equal to the withdrawal value of every annuity policy at all times. Aside from the reserves, the insurance companies are legally obligated by state law that certain levels of capital and surplus be met in order to further increase the protection of the policy holders.

As an added benefit to fixed tax-deferred annuities, they are not subject to withholding taxes while they are compounding. This makes such policies the best option for those people planning to save money for a long period of time. The longer the investment stays without any withdrawals or income payouts made, the longer the growth and the higher the earnings that it will make for the policy holder due to the tax deferment.

What makes tax-deferred annuities attractive is that they do not mature like other instruments such as bonds and certificates of deposit. The principal as well as the interest of your annuity policy will continue to earn interest until you finally withdraw an amount from it or if one reaches the age of a hundred years. You can let your money grow even more if you let it. But what makes tax-deferred annuities even better is that you will always have that option available to make necessary withdrawals or begin receiving your annuity income at any time.

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