When your portfolio is spiraling down and you are running out of time to make up those losses, people start to look for the next sure thing. The problem is that there is always some risks with every investment. Many are turning to investing in a fixed immediate annuity as a portion of their portfolio that they know they can count on for a income. Let’s review the 5 factors to consider for guaranteed income:
1. An immediate fixed annuity is an insurance contract. You give the insurance company a lump sum and in return they give you a fixed monthly (or quarterly or yearly) payment. A deferred fixed annuity defers guaranteed income to some point in the future. The risk is that you hope the insurance company will nevertheless be around and solvent to pay you.
2. With an immediate fixed annuity, you get payments right away. Once you annuitize (take money out) there is no going back or changing your mind. The risk is that you hope you live long enough to recoup all of your initial investment.
3. Annuity holders pay interest only on the interest portion of the payment when received. The other portion is return of capital and tax free. already though your payments are guaranteed, your risk of inflation reducing your purchasing strength is high. consequently, you should only have a portion of your assets in an annuity.
4. According to Beacon Research, top interest rates on fixed annuities can range from 4.75% to 5.40% which compares with yields of 2.81% on a five-year certificate of place or 2.95% provide on a 10 year Treasury observe. Rates fluctuate so look at online calculators to help you compare current rates.
5. Fixed annuities are not as costly as variables. Watch out for additional, encased fees and greater life-expectancy assumptions that will make the payout quote different from each company. It may be a no-load (no commission paid) contract but that doesn’t average you are not paying internal expenses.
The average 65-year-old will live an additional 17.8 years. Many of us will live much longer. Investing in a fixed annuity or an immediate fixed annuity can be a great addition to a portfolio that already has a cash savings account, and some bonds or bond funds. Consider the steps above for a guaranteed income for life.