Tax Deferral Benefits And Other Advantages Of Fixed Annuities Explained

If you are thinking of buying annuities to help you protect part of your retirement funds

, you may wish to consult with your insurance agent to have the pros and cons of fixed annuities explained. In comparison to other types of annuities, you should heavily consider the fixed annuity because it is a secure and accessible investment best for the senior investor. Prior to canvassing for the best fixed annuity available, you will need to know more about this type of retirement investment.

These investments are safe because the investment risk is wholly on the shoulders of the insurance company that provides the annuity. The investment of the lump-sum payment you make is in a low-risk pool of assets that guarantee fixed investment growth and one sure source of retirement income. In comparison, a variable annuity that can potentially generate higher gains are more expensive and risky, as these annuities place the burden of possible investment loss and the inherent risk on the annuity holder.

The premium or initial lump-sum payment you make for your fixed annuity can generate an immediate income stream or provide you with tax-deferred investment growth. Here, you will see the two sub-categories of the fixed annuity based on how it results in investment growth and investor income: the immediate annuity and the deferred annuity.

The tax-deferral benefits of a fixed annuity are numerous, making it a prime investment for those who want to augment their nest eggs and retain most of their profits if they expect inclusion in a lower tax bracket in the future. First, the fixed, tax-deferred annuity allows the investor to defer taxes on all yields (as well as the principal investment), permitting substantial investment growth due to compound interest. Second, it is an effective retirement savings venue as it protects the principal and yields from the eroding effects of tax on investment growth. Lastly, this annuity does not lower in accumulated value due to the lack of periodic taxes.

While fixed annuities are inexpensive compared to other kinds of annuities, while allowing the investor to receive comparatively high yields with lower investment risk, the investor does have to give up some of his monetary liquidity as the money is held for a long period. After you consult with your investment advisor and have retirement annuities explained, consider the fixed annuity due to its balance of decent yields (due to the benefits of deferred taxes) at low risk and low cost (because of the low-risk investment structure and corporate guarantee).

by: Katherine Smith

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