A Fixed Annuity is not just for Retirees

The word “annuity” can conjure up images of a retiree waiting on his or her monthly annuity check. Annuities do offer retirees guaranteed lifetime income, after all. A large number of people, however, are realizing that a fixed annuity is a good way for younger individuals to maximize their retirement savings potential safely.

A particular type of fixed annuity, called a CD-type annuity, appeals to people who are familiar with saving money using a bank certificate of deposit. A CD-type or multi-year guaranteed annuity acts very much like a bank CD – the money that you use to purchase the annuity is “locked up” for a period of time, and you will face surrender charges if you withdraw the funds before the term is complete. It’s best to purchase a fixed annuity with money that you don’t anticipate needing in the near future. One difference between a bank CD and a CD-type annuity is that your deposited funds are held by an insurance company, not a bank. Bank deposits are insured up to $100,000 by the FDIC. If the bank would fail while holding your CD, you could lose any money over the $100,000 FDIC limit. Insurance companies, who offer fixed annuities, are regulated by state governments, and are under strict regulation – they must show that they are able to cover all customers’ annuity values plus a surplus. If they cannot, they face penalties and lowered ratings from insurance rating agencies, such as A.M. Best or Moody’s.

Another difference is that often CD-type annuities offer interest rates that are a bit better than bank CDs. Also, with a bank CD, you are required to pay income tax every year on your interest earnings. With a fixed annuity, your interest earnings are tax deferred until you make withdrawals or begin receiving payments from the annuity. The benefit to this scenario is that the money that you’d normally use to pay taxes continues to compound in the fixed annuity, earning you more money.

Most people realize that a fixed annuity is not going to offer the potentially higher gains that investing in the stock market can yield, but instead, they purchase annuities for their safety, reasonable interest rates and tax benefits. Purchasing a fixed annuity can be a good decision for those looking to diversify their retirement assets.

To learn more about fixed annuities, including CD-type annuities, visit www.FixedAnnuityDirect.com. We have up-to-the-minute rates on hundreds of fixed annuity products. Or call our Annuity Specialists at 1-877-519-8599 to get excellent recommendations for a fixed annuity that can help you grow your savings.