What Are Fixed Annuities And How Do They Work?
Fixed annuities are contracts with insurance companies where you make a payment and receive a guaranteed fixed interest rate, offering predictability and tax-deferred growth. The process involves an initial investment, an accumulation phase with tax-deferred interest, and an optional annuitization phase for regular income. Payout options include life annuity, life annuity with period certain, joint and survivor annuity, and fixed period annuity. Benefits include a guaranteed return, tax-deferred growth, principal protection, and lifetime income. Drawbacks involve lower returns compared to other investments, surrender charges, inflation risk, and contract complexity. They are suitable for risk-averse individuals seeking guaranteed retirement income and tax-deferred growth, especially those nearing retirement.
What Is The Difference Between Fixed Annuities and Bank CD's?
Fixed annuities and bank CDs both offer fixed returns, but differ significantly. CDs, offered by banks/credit unions, are FDIC-insured up to $250,000, while fixed annuities are insurance contracts, not FDIC-insured, but backed by the insurer's financial strength and state guaranty associations. CD interest is taxed annually; annuity growth is tax-deferred, taxed upon withdrawal. CDs are more liquid, but penalized for early withdrawal. Annuities may have surrender charges initially, but offer more flexible withdrawals later. CDs suit short-term goals prioritizing access and safety. Annuities target long-term retirement savings, offering tax advantages. Annuities often include a death benefit, CDs do not. Choosing depends on individual needs; consult a financial advisor.