What is a fixed annuity?
An annuity contract is a retirement tool in which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date while offering a guaranteed minimum interest rate on your purchase payment(s) for a certain period of time.
An annuity contract is a retirement tool in which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date while offering a guaranteed minimum interest rate on your purchase payment(s) for a certain period of time.
What are the benefits of purchasing a fixed annuity?
A fixed annuity can be an important financial tool for your retirement plans. Here's why:
A fixed annuity can be an important financial tool for your retirement plans. Here's why:
- Competitive interest rate guarantees – Fixed annuities generally have competitive interest rates compared to other financial products for long-term savings.
- Tax-deferred growth – For individual purchasers, income taxes on the earnings in a fixed annuity are not payable until the money is withdrawn from the contract.
- Guaranteed lifetime income – Annuities offer lifetime income guarantees upon annuitization. These assurances are not found in other financial products.
- Favorable withdrawal provisions – Many annuities allow up to 10 percent of the value of the contract to be withdrawn without surrender charges. Tax penalties may apply depending upon the age of the contract holder. (Generally, a 10 percent tax federal penalty applies to withdrawals prior to age 59½.)
- No up-front sales charges – The contract value upon which interest is credited, is not reduced by sales charges. The contract value is reduced by surrender charges on early withdrawals.
- Avoidance of probate – In the event of the annuitant's death, proceeds can pass directly to a named beneficiary without incurring probate expenses or possible delays.
- Optional riders – Optional riders may be available to personalize your annuity.
Types of fixed annuities
- Immediate annuity – An immediate annuity is purchased with a one-time payment and provides an immediate stream of income for a specified period of time.
- Deferred annuity – With a deferred annuity, payments are made over time for a long term goal, such as retirement. Over the years, your money has the potential to accumulate tax deferred. Withdrawals providing an income stream begin in later years.
Who needs an annuity?
A fixed annuity might be right for you if you are looking for a way to protect your principal and receive a guaranteed rate of return.
A fixed annuity might be right for you if you are looking for a way to protect your principal and receive a guaranteed rate of return.
You might like to know …
There are two phases to a fixed annuity: accumulation (pay in) and annuitization (pay out).
There are two phases to a fixed annuity: accumulation (pay in) and annuitization (pay out).
- Accumulation - Pay in – During the accumulation phase of your annuity, you accumulate interest on the contract based on your purchase payment amount and the rate guarantee period you selected.
- Annuitization - Pay out – Payments may be either level or increasing periodic payments, and may be set up for either a set amount of years or for the life of one or two people. When it's time to begin receiving income, you make the choices depending on what your needs are at the time.
Your questions answered …
Q: What if the market or interest rates decline?
A. Because fixed annuities offer a one-year, three-year or six-year guarantee period on the interest rate, you'll receive the guaranteed rate even if the market goes down or interest rates decline. The contract also provides a guaranteed minimum interest rate, below which your rate will never be.
A. Because fixed annuities offer a one-year, three-year or six-year guarantee period on the interest rate, you'll receive the guaranteed rate even if the market goes down or interest rates decline. The contract also provides a guaranteed minimum interest rate, below which your rate will never be.
Q: What if I die in a year or so. What happens to my money?
A: There are numerous scenarios that will make this answer unique to your situation. But, if you have not annuitized your contract, your beneficiary is guaranteed to receive at least the greater of your total purchase payments (adjusted pro-rata for withdrawals) or the contract value on date of death.
A: There are numerous scenarios that will make this answer unique to your situation. But, if you have not annuitized your contract, your beneficiary is guaranteed to receive at least the greater of your total purchase payments (adjusted pro-rata for withdrawals) or the contract value on date of death.
Q: What is annuitization?
A: Annuitization is when you elect to start receiving annuity payments. With a fixed annuity, we guarantee that we will make annuity payments for your lifetime in accordance with the contract's stipulations, no matter how long you live or for a set amount of years.
A: Annuitization is when you elect to start receiving annuity payments. With a fixed annuity, we guarantee that we will make annuity payments for your lifetime in accordance with the contract's stipulations, no matter how long you live or for a set amount of years.
At the time of annuitization, you can determine whether you want a fixed-dollar amount and/or a variable-dollar amount, and how frequently and for how long you'll receive your payments.
Q: When do I pay taxes on my fixed annuity?
A: Fixed annuities are a tax-deferred investment vehicle meaning all interest accumulates tax deferred. You pay taxes when you start taking withdrawals.
A: Fixed annuities are a tax-deferred investment vehicle meaning all interest accumulates tax deferred. You pay taxes when you start taking withdrawals.
Q: How can I make sure that I do not outlive my money?
A: A fixed annuity may help protect you from outliving your money. By annuitizing and choosing the lifetime option, you can establish income for life, no matter how long you live.
A: A fixed annuity may help protect you from outliving your money. By annuitizing and choosing the lifetime option, you can establish income for life, no matter how long you live.
Courtesy of Ohio National
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