Buy Fixed Annuity

Annuity can be bought in different forms. However, the deferred annuities come under three main categories. They include fixed annuity, variable annuity and the equity-indexed annuity. Each has its own characteristics and offers varying returns and benefits. Fixed annuity is one the most popular of annuity offered in the financial market. In this form of annuity, the risks are minimal and are the liabilities of the financial company ? also known as insurer - offering it. However, the investor ? also known as the insured - has no risks on investments, whatsoever.

Generally, the terms of fixed annuity hover around the following main aspects. The insurer offers to pay you a fixed amount of return on your investments for a certain amount of years. The insured has the option of paying the investment money either as lump sum amount or paid over a period of installments.

Now whatever be the market conditions, the insurer has to pay the insured the fixed amount as guaranteed in the agreement. This feature makes fixed annuity the safest and surest way to make assured returns on investment. The issuing financial company offers to reimburse both principal and the earnings.

However, there is a flip side to it too. If the prevailing market conditions are buoyant, the investor has to be content with only the assured amount of return. While insurer, on the other hand, makes handsome gains from the invested money. Conversely, there are some issues that an investor should consider before buying fixed annuity.

It?s not ideal to invest in an annuity unless there are ample contributions to other retirement plans, such as an IRA or 401(k). Simply because, these plans offer the same tax deferral as annuities minus the fees. And if an investment is made in an annuity inside a tax-advantaged account, there would be no extra tax benefit to avail. The other repelling factor is the 10 percent penalty an investor under the age of 59 ? has to pay on earnings. It?s also advisable to check the credentials of insurer before making investments. Insurers with AA or higher ratings reflect positive financial strength of the company.



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