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Ultimate Guide To Fixed Annuities

Updated on April 11, 2016

Reasons To Invest

When you are ready to retire, you will need some type of steady income to ensure you can afford to live after you stop working. One of the most important things you may need to do is to find a good annuity rate that will help you achieve your retirement goals. Annuities are one option that can provide a steady stream of income for the rest of your life. You provide a company with some of your savings and, in return, the company promises to pay you a specified amount of income over a period of time.

While the idea of an annuity seems simple, the world of annuities is complex. There are different types of annuities that are offered by many different types of companies. While annuities can provide a steady stream of income, this option is not necessarily the right choice for you.

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Why Fixed Annuities?

One of the main reasons retirees are attracted to annuities is the prospect of consistent and predictable income. With annuities, you can avoid the ups and downs of the market and relax knowing your income is stable. For example, if a 65-year old man purchases an annuity for $100,000 and is paid $550 a month for the rest of his life, it will take 15 years to recoup his original investment. If he dies 30 years later, he will have received $200,000. That is double his original investment. However, if he dies the day after purchasing the annuity, his heirs will not receive his promised income because the payout is only for his lifetime. There is some risk involved in purchasing annuities, but there are some potential benefits, such as receiving more than the original purchase price, that can be gained as well.

If you are fearful that you will not live the entire promised pay period of the annuity, you do have another option when purchasing an annuity. For example, you could purchase an annuity that guarantees you a benefit for a specific period of time, like 20 years. If you die before the 20-year payout is complete, the remaining payments would go to your beneficiaries for the remainder of the payout period.

Sources/Citations: LiveJournal and CNN Money

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Additional Considerations

  • Fixed annuities are essentially CD-like investments issued by insurance companies.
  • Fixed annuities are insurance contracts that offer the annuitant a set amount of income paid at regular intervals until a specified period has ended or event has occurred.
  • A fixed annuity provides guaranteed income for life, but there are other factors to consider.

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Getting The Most Out Of Retirement

Over an extended period of time, you are likely to get better returns by investing in stocks and mutual funds. However, the ups and downs of the market can be stressful and leave you unsure of your monthly income during retirement. An annuity will guarantee you a certain amount of income, not matter what is happening in the market or economy. This type of investment can give you some peace of mind. However, be sure to thoroughly research your annuity options and determine if you want a fixed annuity rate with a specific payout period to ensure your beneficiaries receive your monthly income if you die before the payout period ends.

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