When it comes to investing, there aren't a lot of sure things. You could make a lot of money on the stock market, or you could lose it all. You could buy a home that doubles in value in five years, or you could see your property value sink as foreclosures increased in the neighborhood.
Outside of a simple interest-bearing savings account, there are not a lot of investments that provide a reliable return. A fixed annuity is one exception.
Unlike a variable annuity, the rate of return on a fixed annuity does not change over time.
Fixed annuities are similar to CDs in that they provide a guaranteed rate of return. The difference is that they are issued by insurance companies instead of banks or credit unions, and they pay out dividends at periodic increments rather than at the end of the term, which could be in several years for a CD.
There are two types of fixed annuities: Life annuities and term certain annuities. Life annuities pay out returns over the life of the annuitant, or the person who bought the annuity. For some life annuities, the payment schedule will be based on the life expectancy of the annuitant, so older investors may receive higher payouts. Term certain annuities allow the purchaser to name a beneficiary. If the annuitant dies before the term expires, the balance of the annuity will be paid out to the beneficiary. Typically, an annuity is not passed on to a beneficiary, but rather, benefits are lost when the annuitant dies. Some annuities offer a blend of options to choose from:
Much like a savings bond, fixed annuities offer a guaranteed rate of return, which can help you to build an investment portfolio or to increase your income. Retirees and elderly people often purchase fixed annuities as a way to supplement their income. They can purchase the fixed annuities while they are still working, then receive the dividends throughout their retirement, when they may only have social security income or other limited assets on which to live.
Fixed annuities can also help you to reach your financial goals by providing you a reliable return on your investment. You can purchase a fixed annuity to grow your income, helping you to pay down debt later or to save up for a down payment on a home or to afford your monthly mortgage payment. Though the payout will not be a significant source of income — the payout is usually around 4 percent, though the rate varies according to the amount of the deposit and the insurance company offering the annuity — you can use the annuity and other investment strategies to grow your income in a consistent and safe manner.
How much you can expect to make from a fixed annuity depends on a lot of variables, including the exact interest rate offered, the type of annuity, the company offering it and the amount of your investment. You can our fixed annuity calculator on this page to find out just how much you can stand to make with a simple starting deposit. Then you can play with the numbers to see how much you need to invest and what kind of terms you need to look for in order to meet your financial goals.
Plug in the numbers and we'll send you a plain-English analysis within moments. Arm yourself with information before you head out to shop for a fixed annuity provider, so you need what you need to look for in a fixed annuity to achieve financial success.
This tool will help you calculate the present value of a fixed annuity. It also provides advice about obtaining structured settlements.