Annuities are seen as the savings accounts for the future but what exactly is a fixed annuity?
A fixed annuity is an investment that guarantees you a future income. The investments underlying the fixed annuity are very low risk investments made by the financial institution and are usually in bonds. A fixed annuity is more of a contract between you and the financial services provider in which they undertake to give you a guaranteed return which is paid out to you as an annuity holder in regular installments.
Fixed annuities have a period of accumulation of capital and then an annuitization which is the payout period, which can be in a lump sum or as income, dependent on the policy itself.
Fixed annuities are very similar to life insurance policies with the main difference being that a fixed annuity has the guaranteed investment return providing you adhere to the accumulation period rules. In other words, if you buy an annuity with a lump sum on a fixed return basis the accumulation phase is complete. If however you choose to accumulate over a period, then only once you have accumulated the required amount are you guaranteed the returns that are stipulated in the contract.
Fixed annuities are very conservative investments and are a very popular retirement savings investment, a pure and simple no ambiguity investment that undertakes to pay out RX,XXX on the dates shown.
Annuity investments are invested in on a deferred tax basis where the income or withdrawals from the policy are taxed as income and do not attract capital gains tax. The initial investment, up to certain maximums is exempt from tax at the time of investment.
Contact a good financial advisor in order to ascertain the maximum tax free investment towards retirement that you are able to make. This is a very effective way of investing for your retirement in the most tax efficient way.
