If you’re familiar with retirement planning and the financial implications of going into retirement, you’re probably pretty familiar with the concept of buying annuities. But you may not have realized that annuities are typically broken into two main groups: fixed annuities and variable annuities. Fixed annuities tend to be the most common type, largely because they guarantee that the retiree will have financial support throughout his or her life.
- Fixed annuities are convenient because they provide money to the retiree at a guaranteed interest rate, and they provide much more stability and reassurance than variable annuities provide. Additionally, a fixed annuity usually has a very low initial investment minimum, compared to other types of annuities.
- A fixed annuity can either be deferred or immediate: a deferred annuity means that the interest rate accumulates regularly over time, while an immediate annuity provides you with predetermined payments (the size of which depend on factors like age and the amount of money originally put into the annuity) throughout your entire retirement.
- Annuities in general are convenient for retirees because these payments often function like a paycheck; fixed annuities, however, are even more convenient, especially for anyone who isn’t familiar with investing, because the interest rates stay the same even if the stock market takes a dip.
- As critics are often quick to note, planning for an annuity can be a tricky process because payment schedules for fixed annuities don’t automatically account for inflation. It can be difficult even for an experienced financial analyst to predict how much inflation will change the cost of living, and it’s usually pretty hard to predict how long a person is going to live after retiring.
- Like any type of annuities, it can still be a hassle to surrender your fixed annuity plan or to sell structured settlement payments if you decide that it’s not the best retirement option for you
Ultimately, if you’re thinking about buying an annuity or selling one that you currently own, the best way to make sure that you protect your future finances is to consult with some experts who can help you figure out where you want to be in the future, and if a fixed annuity will help get you there. More like this article.