Saturday, August 30, 2008

Fixed Annuities

Within the 403B retirement category there are three basic options: Fixed, Variable and Indexed.
A Fixed product (called an annuity) is conceptually familiar to most. It is a lot like a CD. You make a contract with a company and they guarantee you a pre-determined rate of return. It won't go up, but it won't go down. Fixed annuities are conservative investments and usually make sense for employees who are approaching the end of their carers. Why? You have worked hard for your money, in the last few years you should plan to protect your nest egg even if it means you don't make as high of a return as possible.
You will most likely never get rich with a fixed annuity, but you have the piece of mind of knowing that what you have is yours and you know how it will grow, guaranteed. The vendors available in your district will all offer fixed products. But are they all equal? NO WAY! Today I can quote three different fixed products from three different approved vendors and they will vary in return rates from 2-6% each year. Add to the differing returns the fees that may or may not be charged and you can see why choosing the correct COMPANY is almost as important as choosing the right strategy (fixed vs variable).
The Good News is this- no matter what you are funding, what you have funded, or what you will fund this year- you can always change your contribution amount and company at any time with a simply salary reduction agreement. You can even scoop the money you have in one company and move all of it to another if you wish.
A WORD OF CAUTION: some annuities have surrender periods- this means if you move your funds too soon they will charge you very painful early surrender penalties. So make sure you talk to someone who knows the rules and penalties with all of the companies you may use.

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