Fixed Annuities | Up North Retirement

Annuities provide the plan owner with a stream of payments or a lump sum payment in exchange for premium payments made at an earlier date. Fixed annuities guarantee a specific interest rate on any contributions they make to their annuity account. These plans are often used in retirement planning, so here’s what you need to know about them. 

Annuities are ideal for people who would prefer a fixed income during their retirement years. There are many different types of annuities, and each offers different advantages. Fixed annuities are the most stable investment, as they offer a guaranteed return. Therefore, they can be useful for creating a cushion that you can leverage in the future.

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Different annuities have different rules that govern how you can contribute to them, how your contributions are managed, and when you can withdraw your funds. Fixed annuities guarantee a certain rate of interest during what is called the accumulation phase. Other investment vehicles rely on things like the performance of a market index or other assets.

When you elect to receive payments from your annuity, the insurance company will calculate how much money to provide you with using their formula. In many cases, this calculation is based on the account owner’s age, how long they will continue to need payments, and potentially other factors. How long you will receive payments varies, as annuity owners have the option to receive payments for a specified number of years or the rest of their lives.

Fixed annuities allow your income to grow tax-deferred. As you earn interest on the premiums you pay into the account, your distributions will be taxed based on an exclusion ratio. This ratio is defined by the account holder’s premium payments and the gains from interest gained during the accumulation phase. To learn more about the tax status of fixed annuity products, you should speak to a professional.

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The Benefits of Annuities

Fixed annuities offer predictable investment returns that are easy to calculate into your retirement strategy. This is because the rates for these annuities are derived from the yield of the insurance company’s investment portfolio. These investments are mostly made into high-quality bonds, so your money is typically safe and in position to appreciate steadily. This is unlike variable annuities, which are managed primarily by the owner of the contract.

Annuities are also beneficial because they offer guaranteed minimum rates, ensuring that you will always have an agreed upon rate available. This makes the tax-deferred growth of the account even more substantial, so you can save more over time. As you invest in the account, you can create a nest egg that has the potential to sustain you for all of the final years of your life. If this sounds like a proper investment to you, don’t wait to get started. The more time you spend investing in your annuity fund, the larger it will grow.