Does Your Portfolio Need Some Stability?

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Investment portfolios work best when they are diverse. Investments are rarely both low risk and high reward, after all, and if you have too many risky ventures going at once, you run the risk of having enough setback losses to undermine the successes that do come. That’s why so many investment gurus urge people to find an option that has some kind of guarantee, in the event that their more volatile investments go under. An overlooked option for this is fixed deferred annuities, which can provide guaranteed income if they are fully paid until they are mature.

How These Annuities Work

The money paid into an annuity is tax-deferred, and you get a guaranteed interest rate, so you don’t have to worry about market volatility like you do with stocks and some bonds. In general, an annuity is a vehicle like a savings account, but with a few options. Fixed deferred annuities in particular have the tax-deferred status they do because investors agree to wait until a stipulated time to begin making withdrawals. The income is then taxed when it is withdrawn for use, along with the interest gained. This avoids double-taxing the principal. The best part is that in the event of the annuity holder’s death, it can be transferred to a beneficiary who will receive the payouts until they are exhausted.

Annuities vs. Whole Life Policies

Whole life insurance policies with a savings component are the closest competition with annuities and the most similar investment in structure to them. While both have their advantages, the annuity brings the peace of mind that comes from being able to count on a regular, annual payment for a fixed number of years once withdrawals begin. By contrast, accessing the money in an insurance savings pool typically involves cashing out the mature policy fully or rolling a portion over and withdrawing the rest, and the tax situation involved with that move can be quite complex, depending on an individual’s finances.


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