If you're a conservative investor, a fixed annuity might be the perfect option.
What's fixed about a fixed annuity?
Even within the category of a fixed annuity, you've got several different types of annuity options available, so a fixed annuity might be one of several types of investment vehicles. One type of fixed annuity is a CD annuity, which guarantees a fixed income rate for a set period of time, up to ten years. A traditional fixed annuity, however, only offers a set fixed interest rate for a specific guarantee period, after which your annuity is subject to a minimum interest rate. Once your guarantee period is over, your fixed annuity investment could fluctuate but never fall below the minimum.
With a fixed annuity, you don't risk investment vagaries.
A fixed annuity gives you an opportunity to rest securely with your investment. You aren't subject to the same vagaries of the underlying investments that you would be with variable annuities. If the stock market declines, you've still got a guaranteed minimum interest rate with a fixed annuity. Fixed annuity options are a good choice for conservative investors that don't have the risk tolerance for less stable investments.
You can get an immediate or deferred fixed annuity.
An immediate annuity begins making payments immediately after you purchase it, typically within a period of one year. A deferred annuity is intended as a long-term investment option; you typically incur penalties if you withdraw funds from it before you reach 59.5 years of age. Both immediate and deferred annuities come in fixed annuity varieties, so be sure you're getting the type of annuity that is best for your financial situation. Keep the early withdrawal penalties in mind, and don't invest in a deferred fixed annuity unless you can afford to part with the funds until your retirement.
Be selective about choosing a fixed annuity provider.
As with other annuity options, a fixed annuity is only as good as its guarantor. Because an annuity is an insurance product, it isn't federally guaranteed, unlike traditional banking investments. That means that if your annuity provider goes under, you could lose part or all of your annuity investment funds. Look for a financially sound annuity provider, and make sure you consult third-party ratings when determining financial security. Some insurance companies have no problem misleading potential investors about financial status, so seeking verification from third parties is a good way to protect your investment.
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