Fixed Annuities – A Low-Risk Investment for the Annuitants
Fixed rate annuities proffer multiple benefits for the retirees as well as those who are close to retirement. One of the major facilities enjoyed by the retired elders is an assurance of guaranteed income. Let us now have a good idea about the details of how the fixed annuities work.
Fixed rate annuities require a single premium investment. The fixed rate of interest throughout the annuity’s term is one of the features of this type of annuity program. Fixed rate annuities are of two types – life annuities and term certain annuities. Life annuities requires the purchasers to pay a fixed amount at regular interval until the annuity expires. Such annuities guarantee the purchasers of a secure source of income. On the other hand, the term certain annuities provide the purchaser with the pre-decided amount till the contract terminates. A fixed rate annuity is considered a safe mode of investment as the interest rate remains stable instead of floating up and down. The investors gain whenever the interest rate dips down but do not reap the benefits of escalation of the interest rate. Distribution of the fixed rate annuities can be done immediately or may be deferred. Immediate distribution starts within one year of the contract being initiated whereas the distribution of the deferred annuities are related with a certain point of time in future.
Fixed annuities have a fair share of disadvantages too. The annuitants have to shoulder the burden of a certain percentage of levy as a penalty in case they withdraw income before the age of 60. The fixed annuities grow up with the piling up of interest but this growth is tax deferred. Deferment of tax does not refer to any exemption from the must-payable amount. The tax is extracted in times of withdrawing the income but at ordinary rate and not at capital gain rate.