Five years after the crash of the stock market those investors who suffered substantial losses and watched their investment portfolios crumble are being a little more careful in their choice of investments. It's not surprising then, that the idea of a fixed annuity has gained appeal in the eyes of many investors, and rightfully so. Fixed annuities offer several key advantages over other investments of equal risk.

First and foremost is the issue of tax deferral. With contributions to IRA's and 401K's being limited on an annual basis, a lump sum investment into a tax-deferred annuity offers the chance of significant appreciation much more quickly than that of a CD or savings account. With these accounts your earnings are taxed each year.

Another appealing aspect of a fixed annuity is the chance for guaranteed income over one's lifetime. The current debate in Congress over the future nature of Social Security has cast a new light on the prospect of the current retirement system and the chance of insolvency or greatly reduced benefits in the coming years. Studies show the Baby Boomer generation is decidedly less optimistic about the ability of the federal government to contribute to their income in retirement.

Baby Boomers are also less inclined to place their faith in the stock market, or any investment vehicle with ties to a volatile index. The idea of a guaranteed return, although less spectacular, has a decided appeal as a component of retirement planning.

So how to go about choosing a fixed annuity?

Choose a company with a stable track record

A ratings from firms such as Standard and Poor's ratings are an indicator of good financial stability. Look for consistently high ratings over an extended period of time. Remember, the annuity you buy before retirement may have to last 20-30 years at the rate retirement life expectancies are increasing.

Low fees

Guaranteed interest rates that seem unusually high may indicate substantial fees that can cut into the real return on your annuity. Dig into the numbers.

Penalties for withdrawal

Most fixed annuities will carry some penalty or surrender charge for withdrawal in the early years. Generally, after five to seven years these penalties will have phased out.

Critical illness options

Many annuities will waive the withdrawal penalties in the event of a critical illness or confinement to a nursing home. This is an excellent feature in the event of an unforeseen illness.

Choice of annuitization options

These should include joint and survivor, period certain, and lifetime only income options.

Finally, the advice of a trusted financial advisor should be considered in the purchase of any investment. Contact us today to learn more about a fixed annuity for your portfolio.

Liquidated earnings are subject to ordinary income tax, may be subject to surrender charges and, if taken prior to age 59 1⁄2, may be subject to a 10% federal income tax penalty.

Guarantees and payment of lifetime income are contingent on the claims paying ability of the issuing insurance company.

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