Fixed Annuities Pros and Cons are the easiest of all annuity products to understand.

You invest money with the insurance company and they pay you interest.

When the investment term has expired, you can elect to have your account balance paid out as a stream of income or you can take the entire lump sum and go elsewhere.

That’s as simple as can be.  Of course it can be more complicated and like any annuity it really depends on your situation if a fixed annuity makes sense at all.  But to continue our series, lets look at the pros and cons.

Fixed Annuities Pros and Cons- First, the Pros:

Guaranteed Interest- You can lock your interest rate for the life of the contract with a CD-type annuity or choose a floating rate that moves up or down according to normal interest rate fluctuations. Either way, your interest is guaranteed to not go below a certain level as specified by the contract.

Tax Deferral- Accumulation within the contract happens on a tax-deferred basis so you have the benefit of additional compounding that gives an effective yield that outpaces other safe cash investments.

Free Withdrawals- Every contract comes with a provision that allows you to take anywhere from 10-15% of the account balance annually without penalty. This can be used to meet minimum distribution requirements in retirement accounts or for discretionary expenses. The money is yours so do whatever you want.

Ultimate Safety- Insurance companies are much more conservatively capitalized than banks so the guarantees mean more, in my opinion. The insurance industry has a much lower default rate than the banking industry and all states have an insurance guaranty fund that matches, and in some states, exceeds insurance provided to banks via the FDIC.
The disadvantages of fixed annuities are equally as clear…

Surrender Periods- Fixed annuity contracts require you to keep your money invested for a specified period of time. In exchange for your commitment to keep your money with the company, there is no up-front sales charge for your purchase. The investment term is known as the surrender period and there is a back-end charge if you fail to fulfill your end of the deal. The surrender period must work within your time horizon. If you need more money than is available via free withdrawal before the end of the contract, this product is not for you.

Conservative Growth- Fixed annuities will never make you rich. They are meant for asset preservation and safe appreciation. These products work just before or during retirement because of safety; don’t expect rapid growth. If you’re a golfer then you know to use a driver on the fairway and a putter on the green. Consider this the best putter money can buy, but keep it in your bag until the time is right.

Fixed Annuities Pros and Cons: Now for the Cons…

The disadvantages of fixed annuities are equally as clear…

Surrender Periods- Fixed annuity contracts require you to keep your money invested for a specified period of time. In exchange for your commitment to keep your money with the company, there is no up-front sales charge for your purchase. The investment term is known as the surrender period and there is a back-end charge if you fail to fulfill your end of the deal. The surrender period must work within your time horizon. If you need more money than is available via free withdrawal before the end of the contract, this product is not for you.

Conservative Growth- Fixed annuities will never make you rich. They are meant for asset preservation and safe appreciation. These products work just before or during retirement because of safety; don’t expect rapid growth. If you’re a golfer then you know to use a driver on the fairway and a putter on the green. Consider this the best putter money can buy, but keep it in your bag until the time is right.

For now, that’s all I can say about fixed annuities pros and cons. Proper placement in a retirement plan requires expert advice and analysis. In addition, there are thousands of available products and even more agents selling them. That’s why you need The Annuity Report so you can understand the specifics of fixed annuities in detail. This is available for download for free in the box to the right.  From this report, you’ll learn how to tell the difference between a good product, company or agent and a bad one, and understand in more detail the fixed annuities pros and cons.