Fixed Annuities and the Stock Market

Fixed Annuities and the Stock Market

Jun 14

With the recent volatility in the stock market, annuities can provide a safe alternative for those interested in investing.  Unlike bonds, they don’t lose value when interest rates increase.

An annuity may sound complicated, but it’s actually a fairly simple concept.  An annuity is a contract between an individual and an insurance company.  If you are the individual, then you would make either a single payment or a series of payments to the insurance company.  You can either keep the money in the annuity, growing tax-deferred, or you can have the insurance company make periodic payments to you beginning immediately or starting at some future date.

Some types of annuities will guarantee a yearly interest rate and others have formulas which will pay interest based on the growth of an index like the S&P 500.  These types of annuities are called fixed indexed annuities.

Annuities may be a good choice in a market like the one we’re experiencing today.  Your principal – the amount you initially contribute to the annuity – is guaranteed by a large, established and well rated insurance company; if you’re investing in a fixed-index type of annuity.  A drawback of an annuity is if you are under 59 ½ and take a withdrawal, you will pay a premature withdrawal penalty imposed by the IRS, because this is a tax-deferred vehicle.

Annuities have other benefits too.

• They  have been around since the 1900’s, so they’re proven investment vehicles
• They are easy to purchase with no upfront sales charges
• They aren’t subject to probate as they pass directly to your named beneficiary
• They can go into an IRA or 401(k)
• Some have a long term-care rider, which will enable you to pay for long-term care expenses with tax-free income from the         annuity

The book “Naked in the Nursing Home” shows you how annuities helps you pay for long-term care insurance in greater detail.