Pros and Cons of a Fixed Annuity - What Is It?
Annuities are formed through an investment contract between an investor and an investment management firm. Usually the management firm is an insurance company. The purpose of an annuity is to generate a stream of income to the investor for a period of time. Here is how an annuity works.
Fixed annuities explained as a form of investment that produces a regular fixed stream of income over some time, are available through most insurance companies. The fixed nature of the annuity encompasses many aspects. First, deposits are closed, or fixed, after the initial deposit. No further money can be placed into the investment fund. Second, the payments are set at a fixed amount. They will never go up or down but will remain constant for the entire payout period. Third, the payout period is for a period that will have a know end. Many fixed annuities pay for a set period of years.
Twenty years is a normal payback period. Some annuities may be a life annuity, meaning it will end upon the death of the annuitant. Although this time may be uncertain the end is fixed by the occurrence of the death of a life in being at the time the annuity was established. There are variable annuities that are the opposites of a fixed plan in that the deposits can be made up to the date pay outs begin, the payouts will vary depending on the investments and interest earned by the fund and payouts can be for various lengths of time with a lump sum instead of payments over a period of time.
Consider these fixed annuities pros and cons. Investment in a fixed annuity will provide a steady income over time. The amount of the interest and payments is contracted for at the beginning of the agreement. There is no way to change these payments during the life of the annuity. Everything is certain. Those may be the good points or some bad points. The investor will tie up the funds at the beginning of the agreement and there is no way to get out of the contract should an emergency occur. As living costs increase the payments will remain the same so what was good yesterday may not be adequate tomorrow. Taking a loan against the annuity o selling it is a possibility but the consequences must be carefully looked at. Anyone looking to buy an annuity should have the contract fully explained before signing on the dotted line.
Fixed annuities explained as a form of investment that produces a regular fixed stream of income over some time, are available through most insurance companies. The fixed nature of the annuity encompasses many aspects. First, deposits are closed, or fixed, after the initial deposit. No further money can be placed into the investment fund. Second, the payments are set at a fixed amount. They will never go up or down but will remain constant for the entire payout period. Third, the payout period is for a period that will have a know end. Many fixed annuities pay for a set period of years.
Twenty years is a normal payback period. Some annuities may be a life annuity, meaning it will end upon the death of the annuitant. Although this time may be uncertain the end is fixed by the occurrence of the death of a life in being at the time the annuity was established. There are variable annuities that are the opposites of a fixed plan in that the deposits can be made up to the date pay outs begin, the payouts will vary depending on the investments and interest earned by the fund and payouts can be for various lengths of time with a lump sum instead of payments over a period of time.
Consider these fixed annuities pros and cons. Investment in a fixed annuity will provide a steady income over time. The amount of the interest and payments is contracted for at the beginning of the agreement. There is no way to change these payments during the life of the annuity. Everything is certain. Those may be the good points or some bad points. The investor will tie up the funds at the beginning of the agreement and there is no way to get out of the contract should an emergency occur. As living costs increase the payments will remain the same so what was good yesterday may not be adequate tomorrow. Taking a loan against the annuity o selling it is a possibility but the consequences must be carefully looked at. Anyone looking to buy an annuity should have the contract fully explained before signing on the dotted line.
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