When you start looking into investing, many are well aware of investment properties and the stock market.
You may hear the terms negative gearing, EFTs and bonds thrown around at dinner parties and backyard BBQs.
Yet, there is an investment option that doesn’t hog the limelight.
It simply ticks along, unassumedly doing its thing.
Fixed Term Annuities.
Over the coming weeks, we will bring you a series of articles based on fixed term annuities.
These articles will include case studies of how Fixed Term Annuities were used successfully as part of an investment strategy.
But first, you may be asking….
What is a fixed-term annuity?
A fixed-term annuity is a retirement investment option that gives you a guaranteed income for a set number of years (or term).
Your income, or cash flow is entirely independent of how the market performs.
The bottom could completely fall out of the market yet your return will be fixed for the life of the term.
This can be a favourable planning for retirement investment option as it provides a safe and stable investment option giving investors peace of mind.
You can see why annuities are a favourable option for those nearing retirement to consider, especially following the turbulence in the market of recent years.
How do fixed-term annuities work?
You can purchase a fixed-term annuity from your super fund or insurance company.
When you purchase your annuity, you will have the choice to select the payments to last for one of 3 options:
- Fixed term – ie: for a set number of years
- For your life expectancy
- The rest of your life
Like other investments, you can choose to own them individually or in joint names for tax purposes.
Income from your annuities can be paid out monthly, quarterly, half-yearly or yearly and can increase each year by a fixed percentage or by inflation.
It’s important to note like any other form of investment, a fixed-term annuity can affect your age pension so be sure to explore your options and impact on any pension payments.
As with any investment, there are pros and cons to consider.
Pros of fixed-term annuities
- Guaranteed cash flow
- Independent of market performance
- If purchased with super money is tax-free from age 60
- Protects you from rising costs of living with guaranteed income
Cons of fixed-term annuities
- Less flexibility than other investment options
- Lesser income if interest rates are low
- Money is locked away until the annuity term ends
- Cannot withdraw your money as a lump sum
Think fixed-term annuities could be for you and want to learn more?
Stay tuned over the coming month as we bring you some case studies regarding fixed-term annuities to consider if they are an investment opportunity for you to consider adding to your portfolio.
