Deferred And Fixed Annuities Explained

If you want manage your retirement finances effectively

, and are looking for guaranteed ways to make money and offset the risk you undertake other retirement investments, you may need deferred and fixed annuities explained. These retirement products, which are provided by insurance companies, are classified according to the timing of payments made to the annuity holder, as well as the profit potential on the initial investment the investor has made. To help you make an informed choice on the type of annuity to buy, here is a backgrounder on how deferred annuities and fixed annuities work:

The Deferred Annuity

In the insurance industry, the term deferred annuity is used to describe an insurance product that provides guaranteed and tax-deferred income to the investor after the holder makes a lump-sum payment to the provider. When you make the initial payment for your deferred annuity to an insurance company, the investment will grow with the benefits of tax deferral. This means that the gains are compounded without the strain of taxes, with the annuity holder being able to receive these compounded gains after a certain time frame.

The Fixed Annuity

Individuals who wish to make longer-term investments while protecting their money from potential erosion the markets can bring usually purchase a fixed annuity. This type of annuity provides a guaranteed minimum return rate for a set duration, with the returns backed up by the company that issued the annuity contract.

As with other kinds of annuities, fixed annuities work with the initial payment made by the investor. This insurance product makes money after the insurance provider invests the lump-sum investment into a sizeable group of low-risk investments. The profits from the low-risk assets your money is invested in then results in the growth of your money by fixed amounts (or fixed annuity rates), which the company is then obligated to give the investor by way of a guaranteed income stream over a set time frame. The payment/s may be made in the form of a single lump-sum payment, multiple payments over a specified time frame, your entire lifetime, or even made to two individuals.

Fixed annuities, when purchased from a reliable insurance provider, are safe investments that come with comparatively simple terms stated in the annuity agreement. If you need the basics of deferred and fixed annuities explained even further, contact your insurance agent to help you make the best choice to add to your retirement investment roster.

by: Katherine Smith

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