Since fewer and fewer employers in the United States are offering retirement options for their employees, more and more people are taking their retirement planning into their own hands. Especially since the economic downturn of the late 2000s, Americans are much more aware of the importance of preparing for cases when money might be short, and it’s been tough to be able to save a sum of money to put away for retirement. What some people are turning to for the purpose of ensuring that they can retire on time and comfortably is buying annuities. There are a few different types of them, but here we’re just going to talk about fixed annuities.
Fixed Annuities
Fixed annuities are a type of annuity that functions much like a certificate of deposit, which is a deposit that accrues interest over time. What are annuities? They’re basically just an insurance product that a person can buy that will at some point create a source of income. Fixed annuities are either deferred or immediate; deferred fixed annuities accrue a regular rate of interest, while their immediate counterparts make fixed payments to the owner.
The Advantages
The advantage of a fixed annuity is that the initial annuity lump sum payment that the owner puts into it is fairly low. Furthermore, this type of annuity guarantees a payout, unlike other types like variable annuities which are dependent on the performance of the stocks within it.
The Disadvantages
The disadvantages of this type of annuity is that there are huge fees and charges if the owner wants to withdraw his or her money early (in the event of an emergency or some other situation when a person needs a sum of cash very quickly). Furthermore, if the owner of the annuity plans to accept payments from it over a long period of time, the value of that money will essentially decrease, since it will not keep up with inflation.
Do you own a fixed annuity? How is it working for you? Let us know in the comments.