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5 Tips on Fixed Annuities

By Compuquotes Team on March 26th, 2008

So you finally decided on investing for your retirement and your preferred option is fixed annuity. Have you done your homework and inspected what you expected from a fixed annuity retirement package?

Here are 5 tips on fixed annuity that you may find useful in evaluating if indeed you made the right decision.

  • 1. Check and validate how your fixed annuity works.

Try and look at your fixed annuity as the antithesis of life insurance, the latter's exact opposite. This is so because your fixed annuity pays out money to you while you are still alive unlike a life insurance that only your beneficiaries will get to enjoy after you die.

The money you shelled out today should earn interest or returns that will accumulate over time and depending on your preferences will either be taxed today or later when you begin getting paid out of the annuity. The bigger you put in now, the more comfortable you are supposed to be when you retire. You opt for a fixed amount that you would want to receive monthly or quarterly when you finally retire. You also set the time when you should start receiving that income.

  • 2. Make sure that fixed annuity is what you need.

Talk to your insurance provider or financial planner. Determine what you need for the future and try to see if your fixed annuity will be able to deliver your expectations. While annuities may be attractive investment options, what with the tax deferment shelters and all, annuities are not usually the first investment or retirement options. If you have savings and other retirement plans, try and see if these will give you the flexibility and comfort level you are looking for when you finally retire. If not, then you can opt for fixed annuities. Try and see also if you have to invest on a fixed annuity alone or would want to combine it with mutual funds.

The paramount consideration is that whatever mix you decide on, whether it is fixed or variable annuity alone or in combination with other funds or savings vehicles, it will satisfy your retirement objectives.

  • 3. Compare your fixed annuity plan with other types of annuities.

Go back to the basics and check your fixed annuity plan against other types or forms of annuities. Compare your fixed annuity plan with various products that can be immediate or deferred, fixed or variable. Are you better off paying in lump sum today or over a period of time through regular investments? Will you go for the lesser risk fixed annuity that guarantees your fixed income in the future, or can you handle a little risk here and there and go for variable annuity.

  • 4. Understand how you get paid later.

Know the payout options available to you, which are practically uniform across the different types of annuities. You may opt for life only options, certain and life payments, fixed-period and fixed-amount payout, or the joint and last survivor option.

  • 5. Check the annuity issuing company.

Is your issuing company good on its word? Your annuity is only worth it if the underwriting company is still around to make the payments to you when you need them. Choose from among the best and most stable of the issuing companies based on resource capabilities, track record, and claims satisfaction.

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