Fixed Deferred Annuity Investments Hawaii

A fixed deferred annuity is the insurance industry's version of a savings account. It helps you earn a modest rate of interest safely and allows you to postpone the payment of income taxes on your earnings for as long as you want.

Fixed annuities sometimes offer higher interest rates than competing investments, such as CDs (certificates of deposit), because the insurance carrier puts your money in longer-term bonds, which typically offer better returns than short-term bonds. Whenever fixed annuities pay higher rates than other safe investments, they're worth considering.

Don't confuse these fixed annuities with immediate fixed annuities, where you pay a lump sum for a fixed monthly payment that can last the rest of your life, a specific number of years, or as long as you or your spouse is living.

Characteristics of fixed annuities include:

• Guaranteed principal: You can't lose your money unless the insurance company fails, which is unlikely if it has a strong financial rating.
• Guaranteed minimum interest rate: Your money never earns less than this rate, even if the insurance company reserves the right to reduce the rate it gave you in the first year.
• Annual withdrawals: Most contracts let you withdraw up to 10 percent of the value of the annuity every year with no penalty. If you're younger than age 59-1/2, however, you may owe an IRS penalty.
• Surrender period and surrender charges: This is the waiting period (one to ten years in most cases) during which you can't withdraw more than 10 percent of your money per year without a penalty or adjustment.
• Death benefits: If you die while owning the annuity, your money (including the interest you've earned up to your death) goes to your beneficiaries. If you want, you can change the beneficiary after you buy the contract.
• Income option: You can convert the value of the fixed annuity to a guaranteed income stream (regular payments to you) for a specific number of years or for as long as you (or you and your spouse) are living.
• Premium requirements: The minimum initial investment for a fixed annuity ranges from $2,000 to $100,000. You can purchase a single-premium contract with one payment or a flexible-premium contract with ongoing payments. If you send in more than one premium, each premium may require the purchase of a separate contract.

Fixed annuities have their pitfalls. For example, you may find yourself trapped for years in an investment that pays you less and less interest every year if you get bad advice or don't read the fine print. But, when handled with care, fixed annuities can be valuable because:

• Your money is safe.
• You can delay paying taxes on the interest you earn.
• You have virtually no upper limit on contributions.
• They often offer higher interest rates than competing investments.
• They can reduce the overall risk of your investment portfolio.