Fixed annuities are an increasingly popular financial tool that many business professionals are turning to in order to both safeguard and grow their income. The concept is fairly simple – a fixed annuity is an insurance product that allows individuals to invest money for a period of time and receive a fixed, predetermined rate of return upon its maturity. Relying on this type of investment can be a smart move for many business people, and it’s important to understand the ins and outs of fixed annuities before you take the plunge.
What Are Fixed Annuities?
Fixed annuities are contracts with insurance companies that guarantee a minimum rate of return. A business professional can invest money into an annuity and the insurance company will guarantee that rate of return — regardless of market conditions. This gives the younger investor time to decide what to do with the money when it matures. Fixed annuities can also be used to generate income for retirees looking for a secure source of income or to supplement their social security.
What Is the Difference between Fixed Annuities and Variable Annuities?
The primary difference between a fixed and a variable annuity is the nature of the returns. With a fixed annuity, the investor’s return is always at a fixed rate, regardless of the market performance – although this rate may adjust. Conversely, with a variable annuity, the returns are directly correlated with the fluctuations of the stock market. While a variable annuity can carry higher returns, it can also lead to a higher volatility of earnings.
Are Fixed Annuities Risk-free?
No financial instrument is free from risk. Fixed annuities do usually carry a lower risk than variable annuities due to their fixed rate of return, but it should be noted that these investments are not without risk. It’s important for all investors to understand the specific risks and repercussions associated with their individual annuities. Additionally, as with any financial contract, it’s important to read all of the fine print and understand all of the terms and conditions associated with the annuity before signing.
What Are the Benefits of Fixed Annuities?
There are multiple benefits to investing in a fixed annuity. For one, you can expect a guaranteed rate of return that makes your investment as close to risk-free as possible. You also have the added security of knowing that the insurance company is obligated to pay you the funds upon the maturity of the annuity. Additionally, depending on the type of fixed annuity, you could have access to the funds prior to the maturity date should you need them.
Getting Started With Fixed Annuities
If you’re considering investing in a fixed annuity, it’s important to take the time to research the different types of annuities and understand which may be the best fit for your individual needs. It’s also a good idea to speak with a qualified financial advisor before making any decisions. With the right strategy and understanding of the market and available options, you can successfully incorporate fixed annuities into your overall financial plan.