A Short Guide on Buying Fixed Annuities

 

In order to provide for your future income especially for the time you will be retired you have to consider all your options. The financial instruments that come highly recommended for individuals who want to secure a steady income for the times when they will not be able to work are the fixed annuities. Just like with all other securities you have to consider a number of factors and all available options in order to make the most beneficial decision. Here are some essential tips that will aid you in the process of buying fixed annuities.

As a start it is essential to consider the standard features of these financial instruments. You will have to pay a single one-time premium for an annuity. With the standard contract you will incur no other costs whatsoever. The interest rate is fixed and you will be able to calculate your returns. Generally an accurate estimate of the overall return is between 3 and 10%. The main advantage of buying fixed annuities that the financial risk you are undertaking is very low. Also, no management of the funds on your side is required, so you can comfortably rely on a stable and secure income without worrying about the details.

There are two main of types of fixed annuities in terms of distribution models that you can choose from depending on your requirements and financial needs. With the immediate fixed annuities you will be able to receive monthly payments upon the installment of the premium until this sum plus the interest rate are depleted. With the deferred fixed annuities you will be entitled to the payments upon the expiration of the time period of the securities. You will be able to choose from a short, medium and long term instruments.

When buying fixed annuities it is essential to choose a type that best suits your particular requirements. The general rule is that the longer the term of the security, the higher the interest rate. Also, you can expect to get a higher interest rate with deals that offer less flexibility. No one can predict the future with certainty even with the most accurate financial planning. That is why you should take into account the amount of money you want to invest as well as how large your reliable your employment income is. You are highly recommended to allow for diversification when investing your savings. There are other financial instruments that involve different levels of risk, returns and time periods. If you set aside part of your savings for buying fixed annuities and the other for purchasing other securities, you can offset the investment risk substantially.

The interest rate is the most important factor to consider when buying fixed annuities. Since it cannot be changed, it is best to purchase such financial instruments when the percentage is relatively high. At present the interest rates are very low and you might have to wait for a while for the financial markets to recover from the economic blow.

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