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The Importance Of Understanding Your Fixed Annuity...

As more and more individuals are approaching retirement, they will almost inevitably be faced with the decision of purchasing a fixed annuity.   For most people, ignoring this financial product is simply not an option. And while it may not be suitable for all people, it is usually included in one form or another in most retirement plans.

If you are a considering an annuity purchase, it is important that you understand the makings of the product before purchasing. When implemented into a properly designed financial plan, the fixed annuity can be a powerful and effective planning tool. When used incorrectly, it can have devastating effects on the size of your portfolio.

The first important factor to understand with any fixed annuity contract is that this type of product is typically intended to be a long-term investment. While there are some swing and go annuity contracts on the market, the vast majority are intended to distribute income for a set length of time.

In a deferred contract, you will have two different stages of the contract, the accumulation and the distribution phase. Both of these two stages are generally designed to take place over a number of years.

Fixed annuities are notorious for their steep early withdrawal or surrender fees. This means that unless you intend to follow the annuity for its designed course, you may find yourself taking a considerable hit to get to your money earlier than intended. For this reason, it is particularly important that you understand your contract and agree to how the annuity is going to distribute your income over the years. It is not a product for the indecisive, and can have disparaging consequences if used incorrectly.

If you do find that you need to change your contract for whatever reason, you are not out of options. A qualified advisor may be able to assist you in limiting the damage done from transferring or canceling your contract early. It is always better, however, to fully understand your contract before signing.