Americans have billions of dollars invested in deferred annuities. While these contracts offer countless advantages, including a guaranteed stream of income after retirement, most people simply aren’t aware of the many benefits deferred fixed annuities have to offer.
Deferred annuities are designed for long-term savings. They can provide monthly or annual payments whenever the policyholder wants to start drawing from the investment. As long as the policyholder delays drawing from the annuity, any earnings in the account are tax-deferred until after they start drawing funds.
So, why a deferred fixed annuity?
1. Keeping it safe – These accounts are backed by billions of dollars in the insurance company’s assets. Therefore, deferred fixed annuities are considered safe, low-risk investments.
2. Triple the interest – Deferred annuities offer tax-deferred earnings and “triple compound interest.” In other words, these accounts earn interest on principal, interest on interest and interest on the taxes you would normally have to pay each year on a CD. Basically, because of the tax deferral and triple compounding effect deferred annuities offer, you’ll have more money to spend after retirement.
3. Guaranteed minimum interest rate – Because insurance companies offer minimum guaranteed interest rates on deferred annuities, you can rest assured knowing that you’ll never lose money regardless of what’s going on around the world.
4. Competitive interest rates – Not only are you guaranteed a minimum interest rate for deferred annuities, but you may be able to receive a higher rate than on a comparable CD. Plus, with some annuities, you can lock in your interest current interest rate for a certain amount of time if you think rates may decrease in coming years.
5. No pesky sales charges – Unlike some other investments, deferred fixed annuities do not tack on a sales charge when you deposit money. Every last red cent of your initial deposit stays in your account.
6. No ‘administration’ fees – With some investments, such as mutual funds, you are charged asset management and administrative fees. You won’t have to pay any such fees with a deferred fixed annuity.
7. Withdrawal advantages – Withdrawals seem to be the most confusing and misunderstood aspect of deferred fixed annuities. Contrary to popular belief, there are quite a few ways to access money in deferred annuities without paying a penalty, such as the following:
- You can withdraw up to 10% from your account each year without a penalty.
- If you are diagnosed with a terminal illness or need to go live in a nursing home, you can usually withdraw as much as you want without a penalty.
- You can convert some or all of your account to guaranteed income for a certain number of years. Some new deferred annuity products allow you to receive a payout at a guaranteed interest rate for the remainder of your life while you retain control of the principal.
8. Sheltered from probate – In some states, your annuity is not considered a probate asset. Therefore, your deferred annuity beneficiaries will not be subject to probate fees or delays.