Tip & How-To about Finance

The difference between fixed and variable annuities

Annuities are available in two forms called fixed and variable annuities. The main difference between the two plans is how earnings are generated and how much risk is involeved in the investment.

Fixed annuities are plans that you can get from an insurance company that have a fixed interest rate for a set period of time. When this period is over the insurance company renews the interest rate an other set of time. Some fixed annuities have a guaranteed minimum interest rate for the life of the annuity. The fixed annuity plans feel safer to some because you know how much interest you are going to be recieveing on your investment.

The other kind of annuity is a variable annuity. In the variable annuity plan you invest your money into a few investment options. The return of these investment depends on how the investments do. Variable annuities have a higher risk than those of variable annuities but can also result in higher returns if the investments do well.

It is recommended that you do your research before making an investment in any plan and talk with a financial advisor that you trust.

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Are there tax benefits to annuity plans?


Yes there are! The money you invest in an annuity plan is not taxed, its tax is deferred. This means that you don't pay taxes on the money now, but when you start to receive your annuity income during retirement it is taxes like a regular income tax.

Sep 02, 2013 | Finance

1 Answer

Are there risks to investing in annuities?


There many risks in any sort of investment. Annuities are not immune to these risks, like say the bank you have you annuity with goes bankrupt the investment is not FDIC insured therefore it is very important that you make sure that the bank you're investing with is refutable. Check the fine print! Look out for a surrender charge some fixed annuities can charge you should you withdraw money before it matures and can be high charges reducing the amount that you will receive after retirement. There can also be age restrictions like giving you a tax penalty should you withdraw the money before the age of 59. Keep in mind that immediate annuities don't change their interest rates with the economy so you can't guarantee to always have a great interest rate.

Sep 01, 2013 | Finance

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What is the difference between fixed and variable annuities?


Variable means that you put the money in investments and depending on how the investments go it determines your income. Lets say you make a really good investment, then you income from the annuity would be high and vice versa. Fixed annuities are very similar to CDs and payout in relatively high rates of interest. Because you are able to know the interest you will receive with a fixed annuity it is a much more popular choice of retirees.

Sep 01, 2013 | Finance

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Are there different kinds of annuities?


Yes there are, there is immediate and deferred annuities. Immediate annuity means that shortly after you invest the money in an annuity you begin to receive your annuity payments. If you are close to retirement this is an option that you can consider so that you get the money sooner. Whereas the deferred annuity sits and collects money and can be changed into a immediate annuity should you need the money sooner. This is an option that you would consider early on to save up for retirement. Within both annuities there are sub types, fixed and variable for you to consider.

Sep 01, 2013 | Finance

1 Answer

What are annuities?


Annuities are used as part a retirement strategy where you make an investment in an annuity plan and it serves as an income that is paid to you later either in installments or as one lump sum.

Sep 01, 2013 | Finance

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