Retirement Income Planning With Fixed Annuities
You can make your retirement income planning strategy stronger by using just the
right allocation of fixed annuities (among other low-risk investments) with higher-risk assets such as premium stocks, for example. These annuities are provided by reputable insurance companies, and come with a host of benefits for the buyer.
The benefits of fixed annuities include guaranteed interest rates for the duration of the contract, tax deferral that permits larger end profits due to the effects of compounded interest, and free withdrawals for up to a certain portion of your annuity balance. Top this all off with investment risk that is shouldered by the annuity provider, and you have yourself a good tool to help preserve wealth while generating decent yields.
As this type of insurance product comes with guarantees and low risk (making it a great tool for the older investor or retiree), it also comes with the disadvantage of lower income in comparison to riskier tools and investments. You may have some liquidity because of the ability to withdraw some of your balance, but you will have to keep most of it in the account for some time.
Conservative Profits
Fixed annuities should be part of an investment portfolio that includes higher-yield and higher-risk investments. Fixed-income, low-risk investments can help offset the effects of possible investment loss by providing stable income at set rates. Investments such as these are only meant to augment the preservation of your assets with a safe and relatively low degree of appreciation. These will not make up the bulk of your retirement money, as your annuity balance will not grow as rapidly or substantially as risky investments do.
Surrender Periods
The contract that you sign when you purchase a fixed annuity also requires you to leave most of your investment in the annuity account for a set period of time. It is this lock-in period that allows you to buy an annuity without any extra sales fees. This duration is also known as a surrender period, and taking out more than the allowed amount within that time will require the payment of a significant back-end fee.
Fixed annuities can be a great way to lower your overall portfolio risk and still generate decent returns for your investment. However, you will need to identify how much of your funds should be allocated towards these types of investments (as well as choose the best insurance company to provide your fixed annuity) to ensure that it optimizes your entire retirement income planning strategy.
by: Katherine Smith
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