by Annuities Explained on May 2, 2010
Fidelity Investments offers a range of different annuities and each of them has been geared to people from specific sociial and demographic groups. Fidelity has taken the time to tailor the annuities that they offer to the segments of the population who either look for information on their website visit their office or call and speak to one of Fidelity’s sales agents. The research that Fidelity has done has resulted in being able to offer annuities that will suit a wide spectrum of the investing population that is interested in annuities. The following are examples of such segments of the investment population together with their investment goals and life situations.
People have different goals and Fidelity has identified the main reasons that people want to invest in annuities. Some people are most concerned about saving for their retirement. This may be way down the road but they want to make sure that their future will be secured and want to start saving early. Others may be closer to retirement and have not previously secured any money so they are looking for immediate income to cover their immediate or impending living costs (covered by immediate annuities). There is another group that is less specific in their investment goals and they simply are interested in general savings and income. Fixed annuities are suitable for people who do not want to take any risk as they build their savings for their retirement. Fixed annuities are tax deferred. The rate of return that they offer is also generally guarateed. The principle of fixed annunities is also guaranteed as well as tax deferred growth. Lastly, they also work with Fidelity preferred providers. There is one drawback with this kind of annuity and that is that there are early surrender fees if you decide that you want to take your money out before the terms of the annuity come to maturity.
For those who want savings and income, there is the MetLife Growth and Guaranteed Income annuity that has deferred variable income and guaranteed income and growth potential compared with a pension that offers much less. It offers guaranteed lifetime income which is hard to find in other types of investments, access to your assets at all times, unlimited growth potential, and an all-in-one investment solution that is cohesive, whole, well-balanced and managed by Fidelity. The downsides to this plan are that the contract value may decrease based on market performance factors. There may be surrender charges, furthermore, if there are excess withdrawals.
The Fidelity Freedom Lifetime Income is a type of annuity that offers guaranteed lifetime income, growth potential, and low cost set-up. The downside is that the payments may fluctuate based on market performance factors.
Fixed income annuities are another type of annuity offered by this company. They offer guaranteed lifetime income, predictable income stream, and flexible payment options. The downsides are that since they are fixed payments, they may not keep pace with the level of inflation in the market economy and that could cost you money.
by Annuities Explained on April 5, 2010
As investors are flailing around looking for both security and growth, one of the first vehicles that comes to mind are fixed income annuities. Although the emphasis with a fixed annuity is preservation of capital, most boast some moderate growth due to the long investment horizon associated with annuities.
An annuity of any type is a contract between the investor and another entity, generally an insurance company. The guarantor provides an investment vehicle similar to a certificate of deposit. Fixed annuities pay a contractual fixed growth rate on the deposited funds. The critical advantages of fixed annuities versus other interest bearing accounts come from the core advantage of any type of annuity: the monies grow tax-free, and many have low investment minimums. A standard starting point for an annuity is between $1,000 and $10,000. They have very similar withdrawal rule to Individual Retirement Accounts and 401K plans with regards to withdrawal planning. An individual must be 59 ½ prior to starting to take the annuity or else pay a 10% tax penalty on the withdrawal.
As with any contract, it is critical to take the time to understand the fixed annuity details for the one you consider as an investment vehicle. All guaranteed annuities generally have a guaranteed minimum rate of 3% returns. Some have higher rates or bonus rate programs but it is absolutely critical to read the fine print on those type of interest rates. They are often not as advantageous to the investor in the long haul so much so as the near term. It is the exact opposite gimmick from a credit card introductory rate: for the annuity, the “catch” is a very high introductory rate and a lower than normal guaranteed rate in place of the credit card’s low introductory interest rate combined with a high post-new member rate.
The key to knowing whether annuities are right for you depends on your level of confidence that you will not need access to that money for at least the first five to ten years of the contract. Some annuities have significant early withdrawal fees, often in the range of 10%. As with any form of fund investing, it is critical to discover the fees upfront as those fees can quickly consume your returns on your investment. The best fixed income annuities have low cost ratios.
The difference between a fixed income annuity and a retirement account is that the annuity at some point will move from the accumulation phase to the payout phase, in which your capital reserve transitions into some form of income. A fixed annuity refers to its method of growth. All annuities can select either a fixed or variable payout. At the point in time when you annuitize the money, the insurance company receives a lump sum in return for a guaranteed payout, generally calculated off life span actuarial tables. Variable annuities work largely the same way, but may vary in actual amount based on market and investment performance.
Not all of the annuity must be annuitized at once. One way to hedge your bet with regards to current interest rates is to transition your annuity in stages, allowing you to try and make one last effort to leverage the most out of your money.
