Understanding Fixed Annuities
Nicholas J. Colantuono, CFP® joined the latest episode of Better Money Boston to discuss a topic that often raises questions among investors: fixed annuities.
What Are Fixed Annuities?
Fixed annuities are a type of investment vehicle that can be likened to a Certificate of Deposit (CD). They require a time commitment, typically ranging from two to five years, during which your principal investment earns a guaranteed interest rate. At the end of the term, you receive your initial investment back along with the accrued interest, which grows tax-deferred until withdrawal.
The Pros of Fixed Annuities
- Guaranteed Returns: One of the primary advantages of fixed annuities is the guaranteed interest rate. This feature can provide a sense of security, especially in volatile markets.
- Tax-Deferred Growth: The interest earned on fixed annuities is tax-deferred, meaning you won’t owe taxes on the earnings until you withdraw the funds. This can be particularly beneficial for long-term financial planning.
- Income Stream Options: Fixed annuities can also be transformed into income streams, similar to pensions, providing financial stability in retirement.
Cautions to Consider
While fixed annuities offer several benefits, it’s essential to be aware of some potential drawbacks:
- Limited Access to Funds: The time commitment associated with fixed annuities can limit your access to your money, which may not be ideal if unexpected expenses arise.
- Interest Rate Risk: The economic landscape is continually changing. If you lock into a fixed interest rate and rates increase, you might miss out on higher returns available in the market.
- Potential Fees: Be cautious of fees associated with early withdrawals. Understanding the terms of your annuity is critical to avoid penalties.
Conclusion
Fixed annuities can be a significant part of your financial strategy, but they demand thoughtful consideration and planning. To effectively navigate the complexities associated with annuities, it is crucial to regularly consult with your financial advisor to ensure they align with your retirement income plan.
Information presented in our podcasts is considered current as of the created date. Over time, some information presented may become stale. We recommend you consult with your Financial Professional before making any changes based on information contained here.
Johnson Brunetti is a marketing name for the businesses of JB Capital and JN Financial.
Investment Advisory Services offered through JB Capital, LLC. Insurance Products offered through JN Financial, LLC.
The guarantees provided by any type of insurance contract are based on the claims-paying ability of the insurance company.
Related Resources
-
Today’s Retirement Reality
Almost one-third of Americans lack confidence that they will have enough income to cover basic monthly expenses throughout retirement. As the economic landscape continues to shift, more individual… -
How to Prepare for Taxes in Retirement
No matter how well you’ve saved for retirement, taxes are an unavoidable part of the process. The good news is that with the proper tax planning, you can minimize this burden and keep more of what… -
What Are Some Unexpected Retirement Expenses to Look Out For?
Today’s question is one we help our clients navigate all the time: What expenses might I be responsible for as I enter retirement? Nicholas J. Colantuono, CFP® joins this week’s Money Wisdom Qu… -
Essential Steps for a Robust Estate Plan
When planning for retirement, one crucial element that often gets overlooked is estate planning. Creating an estate plan can ensure that your assets, legacy, and loved ones are protected. While es… -
How Can I Generate Low-Tax or Tax-Free Retirement Income?
Today’s question is: What steps can I take to generate low-tax or tax-free income in retirement? First and foremost, it’s essential to have a tax plan – one that fits within the context of your… -
Will I Have Enough Income to Retire?
Once you’ve reached the retirement mountaintop, you may be uncertain about how to navigate the descent. Have you saved enough? Will your money last as long as you do? If you’re like most of the pe… -
Preparing for Retirement? Have a Plan for Taxes
Effective tax planning requires a proactive approach for today’s pre-retirees, as neglecting this crucial step can result in a significant tax bill later on. To help minimize your overall tax burd… -
Answers to Key Social Security Questions
The decisions you make about Social Security can have lasting implications, which is why it’s important to get your questions answered sooner rather than later. If you’re unsure about how to maxim… -
The Right Order to Build Your Financial House
You wouldn’t design a house that leaves you exposed to outside elements, so why do the same when building your financial house? A well-constructed house first and foremost needs a strong foundatio… -
Identity Theft: What to Do If Your Identity Is Stolen
In the digital age, the threat of identity theft is at an all-time high. Sophisticated cybercrime tactics and schemes have left us more vulnerable to online scams than ever before. So, what can…
