The benefits of a fixed annuity are simple to understand. This is a contract in which an insurance company makes fixed payments to the annuity holder, until he/she passes away. Those who are looking to receive a fixed income in retirement often times consider an annuity.
Before you make any final decision on how to invest your money it is important to evaluate the pros and cons of a fixed annuity, while also learning how to find the best product for you and your financial situation.
Tips for Finding a Fixed Annuity
With more than 2,000 insurance providers in the United States, finding a fixed annuity is easier than ever before. A large percentage of the companies that sell life insurance also sell annuities.
As a buyer, you need to compare several companies while keeping in mind what is most important to you. Above all else, select a fixed annuity provider that has a high rating. Fitch, Moody’s, Standard and Poor’s, and AM Best are among the top financial rating institutions. If a company rates high with these institutions you know that they are worth doing business with.
Pros and Cons of a Fixed Annuity
Just like any type of investment, there are pros and cons of a fixed annuity. The most appealing feature of a fixed annuity is that it pays a fixed dollar amount based on your needs. For retirees, this offers a guarantee of a certain amount of money on a monthly or yearly basis.
Also, with a fixed annuity you can be guaranteed of receiving money until the day you die. With a lifetime annuity you cannot outlive your benefit.
On the downside, if you purchase a fixed annuity and then change your mind you are going to be faced with extensive surrender penalties. In short, this means your investment is not liquid. Instead, you have to wait for the money to be dispersed to you at the predetermined time.
Also, fixed annuities do not usually keep up well with inflation. Fortunately, you can combat this with an inflation provision in your contract.
Finding a fixed annuity is simple. However, comparing the pros and cons and making a final decision can be more difficult.