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Warning

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Immediate fixed annuities are one of several types of annuities available through insurance companies. Before purchasing one, the buyer should understand exactly how it works. Agents who sell annuity products for insurance companies often use pressure and don’t always explain all the details. Asking lots of questions and insisting on a good explanation are crucial for your own protection. This article will educate the reader about this type of annuity.

1. How these annuities work:

The buyer decides on an amount of money to put toward buying the annuity. It is recommended that you put no more than 50 percent of your retirement funds into this investment. The payment is upfront and you will start receiving a monthly payment when the purchasing process is complete. The monthly payments are provided as long as you live.

To calculate the amount of the monthly income, age, gender and purchase amount are factored in. Reasonable fees are built-in. If no beneficiaries are named, the payments cease upon death. In a policy where there are beneficiary rights, the monthly amount is lowered. Be sure to shop around – the age at which you get back the original amount and the fees charged vary somewhat.

2. Advantages:

Your money will be protected and you will be assured of a consistent monthly sum to supplement your Social Security and pension. You are rewarded with payments beyond the original amount invested if you live a long life. The payment amount is consistent and is not dependent on market fluctuations. Comparing different immediate fixed annuities is fairly easy since they are not full of complexities like other types of annuities.

Unlike other kinds of annuities, you will never be able to cash it out. Monthly payments are the only way to retrieve your money. You will see no growth or cost of living increase.

Things to consider:

If you buy into an annuity in your sixties and have a serious chronic health condition, you may not live long enough to get back your initial investment. Consider the fees charged – is it worth it? As a general rule of thumb, determine if your monthly annuity income plus Social Security and pension is just about enough to provide for your basic needs. Invest the rest of your retirement funds conservatively.

No possibility of growth and the inability to cash out your balance are downsides of purchasing this type of annuity. However, for someone who is concerned about protecting their money and not running out of funds, immediate fixed annuities can be a good choice.