There are many different annuity options that investors can choose from when they are building their annuity plan. One of the primary choices that investors will have involves the rate of return that their annuities will receive. There are two main classifications of rates of return that investors can choose from. They are:
● Fixed annuities - Fixed annuities have consistent and predictable payouts. They are generally comprised of bonds that offer a standardized interest rate and return capability. This offers the annuitant a steady return.
● Variable annuities - Variable annuities have inconsistent rates of return and, generally, unpredictable payouts. These types of annuities are made of varied sub-accounts such as stocks and mutual funds, which justify how the annuitant’s return can fluctuate.
What Do Fixed & Variable Annuities Have in Common?
Fixed and variable annuities overlap in a number of different ways. Most notably, they almost always have a common end goal: serving as a source of steady income for people in retirement and those who cannot work for any number of reasons. They differ quite a bit in the methods that they take toward reaching that goal; however, some qualities of fixed and variable annuities are exactly the same:
● Both fixed and variable annuities grow tax-deferred, meaning the annuitant won’t be taxed on earnings (or the funds themselves depending on qualification) until they receive their payment.
● There are no upper-limits on contributions, meaning that annuitants can deposit as much as they want into their annuities.
● Payment for these annuities can come as a lump sum, through periodic withdrawals, or a mixture of both. How annuitants receive payment will affect the degree to which taxes impact their return.
What Makes Fixed & Variable Annuities Different?
There are a variety of variables that go into creating an annuity that make fixed and variable annuities differ from one another. Despite the characteristics that these two types of annuities share, the features that distinguish them are what helps investors choose one over the other:
● You can typically withdraw your money early at a rate of 10% or less per year after the age of 59 and a half with no negative repercussions.
● You can set up a death benefit rider account to allow a beneficiary to receive your annuity after your passing. However, this can be expensive at times.
● Your money is guaranteed by an insurance company and not the government. In the chance that your insurance company fails, you could lose your money. Even though there is a chance for loss, most cases include a clause that provides a guarantee for loss. Additionally, there are groups made to prevent loss, such as insurance guaranty associations. These structures should keep you and your money safe in the small likelihood of this occurring.
● You will have to pay a variety of fees for your fixed annuity, including a yearly maintenance fee, commission expenses, income rider costs, and surrender charges.
● A variable annuity’s value is not guaranteed due to its distribution into sub-accounts that can sometimes fluctuate drastically. These sub-accounts, such as stocks and mutual funds fluctuate daily — something to be aware of when investing in this type of account.
● Your variable annuity could be spent within your lifetime due to its changing value. Moreover, your beneficiaries could lose all funds after your passing if an income rider plan is not purchased. This makes fees essential to ensuring the longevity of many variable annuity accounts.
● You will have to face general administrative fees as well as investment charges for the management of sub-accounts, making variable annuities somewhat more costly than fixed annuity accounts.
Sell Your Fixed or Variable Annuity Payments
There are many different variables that play into the classification of your annuity. The differences between a fixed and variable annuity are stark, and it’s important to be aware of the implications and fees that come along with owning such an account.
Whether you have a fixed or variable annuity, there is a chance that it is holding you back from reaching your personal and financial goals. You can sell your fixed or variable annuity payments for a lump sum of cash with help from Peachtree Financial Solutions. For questions or inquiries on how we can help you reach your goals, call us today!