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A Short Description of Fixed Deferred Annuities

Posted on 2020-09-192021-03-15 By WebEditor No Comments on A Short Description of Fixed Deferred Annuities

Many folks are attracted to the concept of investing in annuities. The main reason is that for a fixed lump-sum down payment, you’ll get a guaranteed return om a periodic basis in the future. In some cases, such as a fixed annuity, your periodic payment will be guaranteed at a certain dollar amount for as long as you live.

What Are Fixed Deferred Annuities?

Fixed deferred annuities are contractural products designed to produce a specific amount of income on a periodic basis beginning at some time in the future. They are offered by insurance companies. In many respects, deferred fixed annuities function similarly to a certificate of deposit, except that the first periodic payment is deferred.

Should You Buy Fixed Deferred Annuities?

Fixed annuities, either deferred or immediate, are commonly bought by risk-averse investors. A typically good candidate for a fixed deferred annuity is a risk-averse investor who is years away from retirement but is savvy enough to know he or she would like to have a guaranteed dollar amount coming in on a periodic basis upon retirement. For folks such as these, the periodic payments are deferred until the time of retirement. Even some folks already in retirement may benefit from a fixed deferred annuity if they know that they will see a significant decrease in their income at a certain future date further out in their retirement years.

Before investing in a fixed deferred annuity, it may be prudent to check into other risk-averse investments to see if you can get a better rate of return or not. In addition to the aforementioned certificates of deposit, other conservative choices include:

  • dividends from government bonds
  • dividends from electric and gas utility companies,
  • low-expense balanced mutual funds, and
  • municipal bonds and municipal bond funds

A big advantage of municipal bonds is that your income is generally free from federal taxation.

What The Look Out For When Purchasing Annuities

As described above annuities can be a great investment for many people. Before purchasing one make sure you understand any fees and expenses associated with the purchase. It may make sense to shop around for those that come with the lowes expenses. Be sure to check if any annuity you are considering has attached riders. If they do, fees associated with the riders may be high. Also, realize that in times of good stock market returns, you may do better with other forms of traditional investing.

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