Annuities are retirement saving products issued by insurance companies. They are designed to provide retirees with a guaranteed stream of income that they can’t outlive. Annuities provide protection against market volatility and the potential for conservative, tax-deferred growth. With many retirees citing their number one concern as outliving their money, it’s no wonder that annuities have become popular. However, there are many types of annuities and there is often confusion about what they really do. Fixed-indexed annuities (FIAs) are a commonly talked about variation. We’re here to set the record straight about fixed-indexed annuities and help you decide if they have a place in your retirement plan.
What is a fixed-indexed annuity?
Traditional fixed annuities offer a fixed interest rate and guarantee the payment amount. Variable annuities offer returns based on the performance of the chosen investments, and you can lose money in a down market. Fixed-indexed annuities are fixed insurance products, but they work a little differently. A fixed-indexed annuity is a long term retirement income product which provides principal protection and the opportunity to grow over time.
The basics:
- FIAs grow tax-deferred – you pay taxes only when you take withdrawals
- They offer principal protection
- They offer a guaranteed, steady income for life, no matter how long you live
- They earn interest tied to the movement of an external index, such as the S&P 500, yet are never actually invested in the market
- Some fixed-indexed annuities offer a minimum guaranteed interest rate
- FIAs interest is capped, in the form of caps, spreads, or participation rates
Should you purchase a fixed-indexed annuity?
When you have a fixed-indexed annuity and the market does poorly, you are guaranteed not to lose money. When the market increases, you can earn interest. So, are fixed-indexed annuities protected? While you may not get the returns you hope for, you will not lose what you put Are they a good idea for everyone? No. Whether or not an FIA fits into your retirement plan depends on a variety of factors regarding your financial situation as well as your personal goals. It’s also important to note that fixed-indexed annuity contracts vary quite a bit in their terms; you need to understand the details of a policy before you buy-in. When used correctly, the right FIAs can diversify your portfolio to protect you from market volatility and longevity risk. If those sound like your goals, you should consider your options with a qualified agent. At Absolute Retirement Solutions, you can partner with a knowledgable financial professional to create a personalized income strategy for your future. We provide a variety of annuity products, including fixed-indexed annuities, to meet the unique needs of our clients. We can help you decide if an annuity is right for you. Call (913) 254-3030 or fill out our online contact form to start planning for retirement today.
“Annuity withdrawals are subject to ordinary income taxes and if taken before age 59-1/2, may incur an additional 10% federal penalty. Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing company”