Fixed Annuities

The Power of Guaranteed, Tax-Deferred Growth for Retirement

As retirement approaches, the desire for financial predictability and security often takes precedence over aggressive growth strategies. In a world of market volatility, Fixed Annuities emerge as a reliable and conservative financial tool, offering guaranteed interest rates and tax-deferred growth for your retirement savings. For individuals seeking stability, capital preservation, and a clear path to a predictable income stream, Fixed Annuities can be an indispensable component of a well-rounded retirement plan. Shepro Insurance Services, led by Terry Shepro and Josh Peters, specializes in demystifying Fixed Annuities, helping clients understand their benefits and how they can secure a worry-free financial future.

What is a Fixed Annuity?

A Fixed Annuity is a contract between you and an insurance company. In exchange for a lump sum premium or a series of payments, the insurance company guarantees to pay you a fixed rate of interest on your principal for a specified period. The money grows tax-deferred, meaning you don’t pay taxes on the interest earnings until you start taking withdrawals or receiving income payments, typically in retirement. It’s an insurance product, not a direct stock market investment, prioritizing safety and predictability.

How Fixed Annuities Work:

Fixed annuities typically operate in two phases:

1. Accumulation Phase: This is the period during which your premium payments grow. You contribute money to the annuity, and it earns interest at a guaranteed fixed rate. This rate is set at the beginning of the contract and often remains constant for a specific term (e.g., 3, 5, 7, or 10 years). All interest earned during this phase compounds tax-deferred, accelerating your growth without current tax liability.
2. Annuitization Phase (Optional): At a future date, you have the option to “annuitize” your accumulated value. This means converting your savings into a guaranteed stream of periodic income payments, which can last for a set number of years, or for the rest of your life (and potentially your spouse’s life). This provides a predictable income source in retirement. Alternatively, you can typically withdraw the lump sum value of your annuity or roll it over into another retirement vehicle.

Key Features and Benefits of Fixed Annuities:

• Guaranteed Interest Rate: The hallmark of a fixed annuity. You receive a guaranteed rate of return for a set period, providing absolute predictability for your savings. This eliminates market risk and offers peace of mind.
• Principal Protection: Your initial investment (principal) is guaranteed not to lose value due to market downturns. This makes fixed annuities an attractive option for conservative investors who prioritize capital preservation.
• Tax-Deferred Growth: Earnings on your annuity grow tax-deferred until you make withdrawals or begin receiving income payments. This allows your money to compound faster, as you’re not paying taxes on the growth year after year.
• Avoids Probate: Annuities are typically structured with designated beneficiaries, meaning the funds pass directly to your chosen heirs upon your death, bypassing the often lengthy and costly probate process.
• Customizable Payout Options: If you choose to annuitize, you can select from various payout options, including guaranteed income for life, income for a specific period, or joint and survivor options, tailored to your retirement income needs.
• Supplement to Other Retirement Accounts: Fixed annuities can complement IRAs, 401(k)s, and Social Security, providing a stable income floor for essential expenses.
• State Guarantee Fund Protection: Fixed annuities are insurance products and are typically backed by the financial strength of the issuing insurance company and protected by state guarantee associations, offering an additional layer of security.

Who Is a Fixed Annuity For?

Fixed annuities are particularly well-suited for:

• Conservative Investors: Individuals who prioritize safety, principal protection, and guaranteed returns over aggressive growth strategies.
• Retirees or Near-Retirees: Those looking to preserve capital, generate predictable income, and reduce market volatility in their retirement portfolio.
• Individuals Seeking Tax-Deferred Growth: Anyone looking for an alternative to traditional savings accounts or CDs, where earnings are taxed annually.
• Those Planning for Future Income: Individuals who want to set aside funds today to guarantee a stream of income in the future.
• People Maximizing Other Retirement Accounts: For those who have already contributed the maximum to their 401(k)s and IRAs and are looking for another tax-advantaged savings vehicle.

Important Considerations and Disadvantages:

• Lower Growth Potential: While guaranteed, the interest rates on fixed annuities are generally lower than the potential returns from equity investments.
• Liquidity Constraints & Surrender Charges: Fixed annuities often have “surrender charge” periods (e.g., 5-10 years) during which withdrawing more than a small percentage (e.g., 10%) of your account value can incur significant penalties.
• Taxation of Income in Retirement: While growth is tax-deferred, withdrawals and income payments from annuities are taxed as ordinary income in retirement (on the earnings portion), not at more favorable capital gains rates.
• No Inflation Protection (Unless Rider Added): A fixed income stream may lose purchasing power over time due to inflation. Some annuities offer riders for inflation protection, but they come at a cost.

The Expert Guidance of Shepro Insurance Services:

Choosing the right Fixed Annuity requires a clear understanding of your retirement goals, risk tolerance, and liquidity needs. Terry Shepro and Josh Peters at Shepro Insurance Services provide expert guidance by:

• Assessing Your Retirement Strategy: Helping you determine how a fixed annuity fits into your overall financial and retirement income plan.
• Explaining Guarantees & Terms: Clearly outlining the guaranteed interest rates, surrender schedules, and payout options.
• Comparing Carriers & Products: Accessing a wide range of top-rated insurance companies to find the most competitive rates and terms for your specific situation.
• Illustrating Tax Benefits: Explaining the advantages of tax-deferred growth and the implications of withdrawals in retirement.

Shepro Insurance Services is committed to empowering you with reliable retirement solutions. We help you unlock the power of Fixed Annuities to build a foundation of guaranteed growth and predictable income, ensuring a secure and peaceful retirement. Contact us today for a comprehensive consultation to explore how fixed annuities can enhance your financial future.