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Fixed annuities offer a low risk investment option with a very reliable and steady income. Unfortunately, when dealing with investments, low risk typically means a lower rate of return, which is absolutely true of fixed annuities. However, the draw of a guaranteed income is enough to make a fixed annuity part of many peoples' retirement portfolios.
Advantages of a Fixed AnnuityA unique feature of fixed annuities is principal protection. While other investments carry the risk that you will lose some of the money that you put in, fixed annuities provide the guarantee that you will get back any funds that you invested, regardless of the current market.
Another advantage of fixed annuities is inflation protection. Annuities are designed to provide income starting at the time of retirement and continue to provide income for the remainder of the retiree's life. In addition to this advantage, a fixed annuity also comes with inflation protection. That is, these annuities are designed to keep up with the rate of inflation. These benefits are especially important in retirement, when individuals are living on a fixed income.
Disadvantages of a Fixed AnnuityWhile fixed annuities offer guaranteed returns and other advantages, there are some drawbacks preventing them from always being the wisest investment option. The first disadvantage a new customer would likely notice is the annuity fees. Users are charged relatively high fees to maintain their accounts, which negatively impacts the amount of money that is made on such an investment.
Another drawback to fixed annuities is their limited options and limited earning potential. This investment option is designed to be safe and guaranteed. Unfortunately, this limits the number of options available to invest in. Additionally, this impacts the rate of return compared to other investments.
Although there are disadvantages to using fixed annuities for investment purposes, they are a safe way to ensure some amount of retirement income. As such, it is important to balance the pros and cons of this type of investment when developing a retirement portfolio.
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