A fixed annuity is an agreement between an insurance firm and its clients. The agreement compels the company to pay a fixed income to the client for the particular period that is mentioned in the contract. Fixed annuities offer a secure, but lower returns. They also provide tax deferral. Investors buy annuities when they offer higher interest rates. The fixed annuities are generally used by individuals who are partially employed and are on the verge of retirement or have retired.
There are some advantages of purchasing fixed annuities. They are as follows:
Secure: Purchasing fixed annuities with a multi-year guarantee fixed annuity and keeping it for the entire defined period is secure and a traditional way to increase your income. It’s even more secure than a share or bond because a share’s price or the bond prices can drop due to various factors like the high interest rates, company performance, etc.
Tax deferment: Annuities grow tax-deferred. You receive interest annually, but the benefit is you need not to pay taxes on it. This way, you are increasing your saving in a faster manner. The longer the period of annuity the longer you delay in paying the taxes.
Fixed rates: When you purchase a multi-year guarantee fixed annuity, you already know its interest rate and the return on your investment. On maturity, you will get an exact committed amount by the company, unless you don’t make an early withdrawal.
High return on longer maturities: You tend to receive good returns with the annuity of longer maturities, like a five-year treasury bond pay high interest rates when compared to the annuity of short maturities, like a one-year treasury bill.
If the owner dies, the assets avoid legal procedure: If the owner of the fixed annuity dies, the money goes directly to the nominee person that too without any probate or legal hurdles.
In conclusion, fixed annuities are a powerful investment tool for saving for a peaceful retirement. It guarantees regular streams of money upon retirement. They are usually used to defer taxes and saving money.