By Andrew Rosen via Iris.xyz
Understanding Annuities in 5 Minutes or Less, annuities can be a complicated animal. There are certainly circumstances where they fit a need in one’s life and so I’d like to take a few moments to educate about the 4 main types of annuities.
A fixed annuity is similar to a CD but instead of with a bank it is with an insurance company. A fixed annuity will issue a contract and pay you a pre-determined interest rate until maturity while guaranteeing your principal. Typically, the longer you are willing to lock in your dollars the higher the interest rate paid. Like any annuity the dollars will accumulate tax deferred until withdrawal and also generally have some form of annuitization option if you so desire. Since there is no FDIC insurance on these vehicles, like a CD, there are typically higher interest rates than you can receive with a bank sponsored equivalent investment.
Who are they good for?
Fixed annuities are good for the investor who don’t have much risk at all, and lacks immediate liquidity needs. They are great for the person who wants a slightly better rate than a CD. In addition, if you are in a very high tax bracket you may find some value to the tax deferral.
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