What To Consider When Choosing Your Fixed Annuity

Written By: John C. Ryan on January 3, 2010 One Comment

Fixed annuities vary in benefits, accumulation rates and payout rates. That’s why you need to seek outside help before you sign on the dotted line for any investment product. The selection is vast but there’s a perfect fixed annuity for you.

Often people talk to their friends to find financial products. While this is a great way to learn about innovations in investment products or even find a good financial advisor, it’s not the best way to find a fixed annuity. Each person has different needs and yours may not be the same as your neighbor, family member or friend. Changes also occur in the industry daily.

A person who puts in a principal during a period when the interest was sky high, may be getting a bigger sum as opposed to people who invested their money during a lower interest rate period. The companies alter the returns some times and as a result, what you get every week may change accordingly.

Fixed annuities are excellent for people seeking security irrespective of the fact whether it is to draw an instant income or permit the invested amount to accrue interest. The stable upward trend with absolutely no worry about the loss of the initial amount invested frequently attracts those who are dubious about taking any risks. Invariably such people are those who are in their pre-retirement years and have no will to fight for losses that occur due to bad investment.

Fixed annuities, similar to the banks, offer warranties supported by the government. If any company in any particular state happens to face financial trouble, they ensure that the policy holders’ do not lose their assets, by selling proportionately pooled funds. So, as you can see the State Guarantee Funds carries out the same functions like the FDIC, making fixed annuity the most suited for people on the lookout for safe means of investing their money.

While your friend might suggest a company with a high rate of return on their fixed annuity, you also need to look beyond just the return to see if the product is right for your situation. Do you need access to any of the funds? Do you have an adequate emergency fund? When will you need the money? These questions and more need answering before you invest your funds.

Every annuity has a period of surrender, and this is more or less like locking your money into a CD. If you happen to withdraw the invested amount before the surrender period, you are liable to pay a fine, but the fact remains that if you extend the contract after expiry of the surrender date, you do not have to bother to sign up for a new CD. Should you miss the window you do not need to wait, it is readily made available to you when ever you want, meaning that another surrender period is never started.

There are a lot of people for whom the money that they invest is never made use of and for such people; the term of surrender does not create any trouble. But for people who have to use to money when a contingency arises, the penalty free sum is an important criterion. Similar is the case with persons who require sums at fixed intervals. The most important thing that you should look into is what exactly your requirements are before you put in your money.

John C. Ryan analyzes the merits of a fixed annuity as part of a proper retirement investment portfolio. Fixed annuities are a low risk investment, tax deferred as a way to save for retirement.