LYCOS RETRIEVER 
Annuities: Fixed Annuities
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Fixed Annuities offer safety of principal and earn a guaranteed rate of interest for a specified period of time. It is a low risk product for conservative investors who don’t want to be burdened with making complex investment choices. They ... can provide an income stream that cannot be outlived, which may be of particular interest to those approaching retirement or already retired.
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Annuities were particularly tempting for people looking for a fixed income from early retirement. They mistakenly thought they would get a set amount per year for life, and some stockbrokers allowed their clients to believe this. Investors were in for a shock when the market dropped.
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Annuities can be purchased with a single lump sum of cash; such annuities are often referred to as single premium annuities. They may ... be purchased with installment payments over time, either of a fixed dollar amount on a regular basis or with flexible payments.
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The interested reader should see IRS Publication 939, General Rule for Pensions and Annuities, for the details on how to calculate taxes due on annuity payments. As an illustration, assume you have a fixed annuity in which you've invested $100,000 that will pay you a sum of $750 per month for life starting at age 62. According to IRS life expectancy tables, you will receive those payments for 22.5 years, so your contract's value is $202,500 (12 X $750 X 22.5). Your exclusion ratio is 49.4% ($100,000/$202,500). Therefore, out of the $9,000 the annuity pays each year, you may exclude $4,446 from income. The remaining $4,554 of that payment will be subject to ordinary income taxes.
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Long considered a CD alternative, annuities have become very popular today. Paying higher rates than CD's and deferring taxes, many people on a fixed income find annuities are a better option than tying up money in CD's or letting it warehouse in a money market account.. Like a CD, you can place lump sums of money in annuities. You must leave the money in the annuity for a period of years, usually between 2 and 5 years. The longer you leave the money in, the higher your interest rate will be. Depending on the annuity purchased, a yearly amount is allowed to be withdrawn without a penalty.
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Fixed deferred annuities can be well suited for investors who are looking for the safety of a more conservative retirement investment. A fixed annuity offers the stability of a fixed, guaranteed2 rate of return. Plus, the interest you earn is tax-deferred until you begin making withdrawals.3 Fixed annuities ... offer the advantage of competitive interest rates versus many other fixed-rate products.
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Fixed Annuities