Low Interest Rates & Fixed Rate Annuities

By on February 21, 2018

Baby boomers without a pension offered by an employer will need a retirement savings plan and
annuities are a safe and secure way to save retirement income and stay ahead of inflation – making sure your retirement has longevity. You do not want to stress about potentially losing all of your money in the stock market, but you need enough income to outlive your personal savings and a fixed rate annuity is a great low risk savings tool. Annuities are complicated product which can help you save, but be sure to plan carefully when interest rates are historic lows.

What is an Annuity

An annuity is an insurance savings product which paces out income in a stream of payments over a set period of time or for the life of the policyholder. A fixed rate annuity is worth considering if you have low risk tolerance and a shorter time horizon for when you need the money. With a fixed rate annuity, you.

Features and Benefits of an Annuity

  • Minimum guarantee — Fixed annuities lock in a guaranteed rate of return for a set term; rates can fluctuate but will never drop below your guaranteed rate.
  • Income stream — All fixed, deferred annuities can be converted into a periodic payments ensuring the policyholder will not outlive their retirement savings.
  • Tax deferral — Money invested in fixed, deferred annuity is tax-deferred. Interest earned is not taxed until withdrawal or conversion to an immediate annuity, helping to lower your tax liability..
  • Access to Funds — When faced with certain opportunities or expenses, some policyholders are prompted to close an annuity, but this can come with some hefty costs. Instead, carriers offer partial withdrawal options in their annuity contracts.

Fixed rate annuities are offered to investors who want to be sure they have support throughout retirement without losing money, but you won’t have the potential for growth you’d get by investing in the stocks market. For example, if you invested $100,000 in an immediate annuity with a 2% interest over a 15 year term at the end of the annuity, you will have earned about $16,000 in total interest. And if you defer the annuity, you deposit will grow tax-free until converted to an immediate annuity when payments begin.

Annuities and Low Interest Rates

Even with the multiple advantages of a fixed rate annuity, some investors are still hesitant to purchase policies during a low interest rate environment for fear of not having enough cash to cover inflationary prices. But the right carrier with a history of financial strength and the right customer-focused broker can build the right annuity for your situation in the current investment environment.

Even with interest rates at historic lows, some retirees will still fare better with a fixed rate annuity over other low risk savings tools, such as money market accounts or CDs which are not tax-free. It’s better to have some guaranteed income rather than none, as could happen when your savings account is drained to cover risings costs or your mutual fund is wiped out. An annuity would continue to provide you with some insurance for your lifetime.

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About Harold Goldman

I am the founder of FinancialSafetyNet.org, and a Retirement Planning and Long-Term Care specialist. I am also the President of Emes Insurance Services, Inc., a Murrieta based insurance agency designed to help people with Retirement Planning and funding for College. I believe in educating my clients to become financially competent in an effort to develop plans for guaranteed income, protection against loss and tax-advantaged growth. To contact me Call (844)-376-2265

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