Are you tired of making less than 1 percent on your money and having to pay taxes on that growth? Do you enjoy the flexibility of being able to access your money and not having it “locked up” for several years? If you answered yes to both of those questions, consider the benefits of purchasing a fixed annuity.
Q: So what is a fixed annuity?
A: A fixed annuity is a contract that provides a guaranteed interest rate as well as the ability to provide income for life, income for a specified number of years or a combination of the two.
Q: Is a fixed annuity safe?
A: Yes. Look for a fixed annuity contract with a built-in option that guarantees return of your premium deposit. Even if you cancel the contract during the surrender period, at minimum you will still get your initial deposit back – assuming you have taken no withdrawals
Q: Can I lose money in a fixed annuity?
A: In most cases the answer will be no. Fixed annuities have guaranteed rates. Look for a fixed annuity that has a yearly guaranteed rate. Then, as interest rates rise, your fixed annuity rate will also increase. It also has a guaranteed minimum interest rate that allows for growth in your annuity regardless of what the financial market is doing. There is a small risk of losing money should the company where you purchased your annuity file for bankruptcy. This is another reason for choosing a company that is financially secure.
Q: How do I know if a company is financially sound?
A: Check out the company’s rating with A.M. Best Co., an independent provider of insurance ratings since 1899.
Q: What are the tax advantages in a fixed annuity?
A: There are two main tax advantages.
- Tax-deferred growth. With CDs, you have to pay taxes on growth yearly. With a fixed annuity, you defer those taxes until you start withdrawing.
- Tax deduction for contributions. You can add an IRA endorsement, which may allow you to take a tax deduction when you make a contribution.
Q: Do I have access to my money?
A: Some fixed annuities charge a penalty, or surrender charge, in the first several years if you cancel the contract or withdraw money. Look for a fixed annuity that guarantees to return your principal or whatever money you have deposited. Most fixed annuities offer an opportunity to withdraw up to 10 percent each year with no surrender charges.
Q: What happens to my money when I die?
A: Proceeds at death usually avoid probate and transfer to a named beneficiary of your choice. See your tax adviser or attorney for estate planning advice.
Q: Is a fixed annuity right for me?
A: Some states have annuity suitability regulations that may require an examination of your financial situation prior to you purchasing a fixed annuity. Be a smart shopper. Take the time to consider your needs and know your options.
Q: So how do I get a fixed annuity?
A: Contact your local independent insurance agency for more details.
Neither The Cincinnati Life Insurance Company nor its affiliates or representatives offer tax or legal advice. Consult with your tax adviser or attorney about your specific situation.