Why Savvy Retirees Are Choosing Fixed Annuities Over Standard Bank CDs

Fixed annuities are issued by insurance companies and work much like CDs (Certificate of Deposits). The are all about having a stable form of income and therefore are most popular for those thinking about retirement. There is a guaranteed rate of interest, stated at the start of the annuity, and the interest rate can be higher than those available for bank CDs.

Types of fixed annuities

Deferred fixed annuities are exactly what they sound like – deferred until the investor chooses. An immediate annuity is a fixed series of payments made at regular dates, and usually bought when the investor retires. Life annuities pay until the investor passes, and life annuities with a guaranteed term have the advantage of leaving something for the investor’s beneficiary should the investor pass before the term is finished. Substandard health annuities are a type of life annuity available for those with serious health issues. Term certain annuities are quite different to life annuities, and pay only for a certain agreed period of time. They are simpler and less expensive, but also come with less insurance add-ons.

Benefits

Investments into a fixed annuity can be as low as $1,000 and these investments are tax-deferred. You have the flexibility either to make a lump sum investment (for example at the start of your retirement) or to make regular payments into the annuity if you are still working.

Drawbacks

On fixed annuities, the interest rate may not be fixed for the entire period! Make sure you check the small print. Payouts can also vary between products and insurers, so be sure to do your research thoroughly before making a decision. Also consider that any cash from annuities left to beneficiaries will be subject to taxes.