Comprehending Fixed Annuities Pros and Cons as an Aid to Making an Informed Choice
A fixed annuity is an agreement between a financial institution and an individual based on an investment tool. The individual agrees to pay the other financial institution regular premiums or a lump sum of money in exchange for a fixed income every month or quarter on maturity of the product. The extent of pay outs is mainly for the lifetime of the annuitant. Fixed annuities pros and cons offer a glimpse of what to expect when investing in this retirement product.
Fixed Annuities Pros
The first advantage of fixed annuities is the fact that the bank or insurance company guarantees you a fixed payment on maturity of the investment. This provides a low to no risk investment for the investor. In addition, fixed annuities, as in deed is the case with all annuities, your investment is not tax deductible for the length of its life. Before the investment matures, the investment enjoys tax protection from the government taxation system. Putting money into a fixed annuity investment will also provide a government guaranteed investment tool. With the government co-guaranteeing your investment, you may be sure that your future income is secure.
Fixed Annuities Cons
Fixed annuities have a lock-in period before they mature within which it is quite difficult to access your money. In case of an emergency, having all your savings in a fixed annuity investment may not be the best plan. This is because accessing ones holding incurs severe penalties. In addition, if you are in search for a short-term investment, fixed annuities are the wrong tool to use. They only perform best for long term income security goals. This financing device may promise you an income but, unfortunately, it cannot guarantee that that income shall be proportionate to your future needs.
Fixed annuities are an excellent investment tool to create income security in the long run. However, the best way to work with this is to have a balanced portfolio that invests in various investment vehicles. In this way, one can insure ones future needs against future market variables. Also, set up an emergency fund within your portfolio.
