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Is A Personal Pension Right For You?
What they are and why they're important.
Fixed Annuity
A fixed annuity guarantees a return of a specified amount immediately after purchasing the annuity or at a deferred date that can be after you retire from work.
In either case, fixed annuities convert a lump sum amount into a steady stream of regular income and help evade huge tax payments. Investments associated with guaranteed or fixed annuities are usually low-risk securities like government bonds.
Fixed Indexed Annuity
(FIA's) have characteristics of both fixed and variable annuities. Their return varies more than a fixed annuity, but not as much as a variable annuity.
FIA's offer a minimum guaranteed interest rate combined with an interest rate linked to a market index such as the S&P 500 for example. You have the opportunity to take advantages of index gains but are protected against index losses. For example, if your account is linked to the S&P 500 and the index incurred a loss during your contract year, your account is credited with a 0% return but you do not incur a loss. Also, any interest earned is credited to your account, becomes a gain and can't be lost in the following year due to an index fluctuation. In most FIA's you are allowed to change your allocations once a year on your anniversary date.
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Most FIA's give you the option to purchase an Income Rider. The Income Rider helps build a monthly or annual life time income for you or your spouse. With many income riders, if the owner dies, the monthly or annual income may be set so that the surviving spouse continues with the life time benefit.
Single Premium Immediate Annuity
(SPIAs) are generally a single deposit amount. Other common forms immediate annuity also has regular payments option at specified intervals. In either case, you start receiving regular monthly payments instantly which is within 30 days of depositing the full amount with the insurance company.
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Immediate annuity is a good option for people who have planned late in life and don't want to miss out on the option of a guaranteed income. In immediate annuities, the amount of money you receive form the annuity is always based on the premium deposit, the length of time the annuity is bought for, and the particular guarantees offered by the insurance company. The rate of return from an immediate annuity can again be 'fixed' or 'variable'. Immediate annuities have a number of benefits. First of all they are simple to understand.
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The biggest advantage and character of immediate annuities in their ability to qualify you immediately for benefits. Payouts from immediate annuities can span your entire life, till death, for you and your spouse or be specified for a fixed term, for example 20 years.
What is the Real Risk?
There's only one- you want to make sure than you buy an indexed annuity with an insurance company that will stay in business. Indexed annuities are not insured by the government like your bank account is. If the insurance company goes under, you could lose your investment.
The key is to stay with top-rated insurance companies that are rated A or better by A.M. best.
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Conservative investors and retirees have always dreamed of an investment that could make money during the good times and avoid losing big money during the bad years, such as the one we are experiencing now.
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