The advantages of a deferred fixed annuity are a healthy yield that rises over time if market rates rise, tax-deferred compounding, and safety of principal. But those features generate higher fees and reduce your returns. Insurers offer optional features on deferred fixed annuities, including having more access to your money. You probably won’t be able to take your money back or switch it to another insurer’s annuity without penalty for at least seven years.Ĭurrent average annuity rates fixed can expect between 3.60% and 5.25% ranging between 2 years and 10 years in length. Most insurers limit withdrawals to 10% of the principal per year without penalty for at least a period of time. You’re likely to have limited access to the money in the annuity. The interest credited to your account compounds tax-deferred until you withdraw it. There usually is a modest guaranteed minimum yield. Yields on deferred fixed annuities usually are about the yield on intermediate investment-grade or mortgage bonds. Typically, the yield is determined by the insurer based on its expected investment returns, expenses, and other factors. Each year the insurer credits a return or yield to your account. You make a deposit with an insurer, usually a lump sum but periodic deposits also are possible. These are a classic, plain vanilla annuity. Unfortunately, many critics of variable annuities shorten their advice to, “Don’t buy annuities.”īelow, I focus on three types of annuities.ĭeferred fixed annuities. I’m not recommending the high-fee variable annuities that are roundly criticized. Note that I’m recommending you consider only particular types of annuities. However, when you want higher yields than cash and fear what rising rates will do to bonds, consider putting the safe or fixed-income portion of your portfolio in certain types of annuities. Many investors ignore the complementary and important role annuities can play in retirement portfolios. Annuities are the Rodney Dangerfield of income investments.
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