Risk-free, predictable returns to fund your retirement.
Growth and accumulation are important components in any retirement plan. To fund your dream retirement, you don’t just have to save money. You also need to grow those funds. As you approach retirement, though, you may become less comfortable with the volatility and risk that comes with investments in the financial markets.
A fixed annuity could be an appealing alternative. Fixed annuities are financial tools issued by insurance companies. You contribute a lump-sum of money and those funds then receive interest over a defined period of time. You can withdraw the interest as income or let it accumulate on a tax-deferred basis.
When you retire, you can start taking withdrawals from the policy or you can annuitize the contract value and create a stream of income that is guaranteed to last as long as you live.
Curious about whether a fixed annuity is right for you? Below are some of the most important points to consider when thinking about how a fixed annuity can fit into your retirement planning strategy:
Guaranteed Interest Rate
One of the most appealing features of a fixed annuity is the fact that the interest rate is usually predictable and certain for a defined period of time. When you open the policy, you will be able to choose from a range of rate-lock periods, such as one, three, or five years. The rates may differ for each period.
Once you open your policy and select your rate and duration, the rate is fixed for that period of time. That means you will always know exactly what your return will be inside the policy. When the rate period is over, the contract provider will set a new interest rate.
By choosing a longer rate-lock period, you may give yourself more certainty, but you also may receive a lower rate. On the other hand, some companies offer higher rates for shorter rate-lock periods. Either way, you have the flexibility to choose the option that works best for you.
After your initial rate period ends, your contract provider will offer a new interest rate. Fortunately, all fixed annuities come with a guaranteed minimum interest rate. This is the lowest rate that the insurance company can offer. As long as you own the contract, you can rest assured that your interest rate will never be less than the minimum.
The minimum interest rate also protects you from potential loss. Since you have a minimum guaranteed interest rate, there’s no way to lose money to market volatility or downside risk in a fixed annuity. Most fixed annuity contracts offer a guarantee of principal to provide added certainty and protection.
Fixed annuities are treated as tax-deferred financial vehicles, similar to an IRA or 401(k). All growth and accumulation in the policy is tax-deferred, meaning you don’t pay taxes on that growth until you take money out of the contract. Like other tax-deferred vehicles, you may face a 10 percent early distribution penalty if you withdraw funds from your fixed annuity before age 59 ½.
Most fixed annuities have something called a surrender period, which is a predetermined period of time in which you may face a penalty if you surrender your contract or take a sizable withdrawal. Surrender periods vary by contract and can last three-to-seven years.
However, you still have some level of liquidity, especially when compared to an immediate annuity. Most policies allow you to withdraw up to 10 percent of your account value in any given year without facing a surrender penalty. That gives you added liquidity to fund emergencies or other unplanned expenses.
A fixed annuity can be a safe way to grow your assets and fund your retirement. Let’s connect and discuss how a fixed annuity can work as part of your strategy. Contact us today at America’s Annuity to start the conversation.