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Fixed Indexed Annuity
What is a Fixed Indexed Annuity?
A fixed indexed annuity, or FIA, is a retirement product that provides you a guaranteed income stream for life.
How does a Fixed Indexed Annuity work?
FIAs are offered by insurance companies. Either a lump sum or multiple payments are deposited into the annuity and then the insurance company invests that money and credits interest to your annuity. Unlike a 401k, the insurance company absorbs the risks of market downturns - guaranteeing you will receive at least what you paid to purchase it.
Is a Fixed Indexed Annuity right for me?
Like any investment product you need to make sure it is a good fit for your financial portfolio. You need to understand the product features, and that the benefits align with your goals. A great way to verify this is to talk to a properly licensed financial professional.
An FIA may be right for you if you:
- ✅are looking to diversify your portfolio
- ✅want a guaranteed income stream during retirement
- ✅want growth potential without the risks of market downturns
- ✅like safety
- ✅are tired or fearful of market fluctuations and volatility
- ✅do not have a FIA product in your portfolio already
Pros VS Cons
Pros
➕ Guaranteed Income Stream
➕ Diversification
➕ Principal is secure
➕Participate in upside market gains with no downside risk
➕ Tax-deferred growth
➕ No annual management fee
➕ Liquidity – flexible withdrawal privileges
➕ Higher return than CDs, money markets, savings accounts, and bonds
➕ Unlimited contributions
➕ Inheritance -bypass probate by passing money directly to heirs
➕ Safety
➕ It is possible during a down year (or years) to have zero-interest crediting
➕ In contrast variable products and market products would draw a negative balance in down years, a fixed index annuity would lose nothing.
➕ FIA are backed by highly regulated state insurance companies
➕ Long-term savings solution
➕ Backed by state guaranty programs
➕ Income Riders available (on certain products)
➕ Premium bonus riders available (on certain products)
Cons
➖10% IRS penalty on withdrawals prior to 59 1/2 years of age (this applies to any retirement accounts including 401k and IRAs)
➖ Early withdrawal penalties or surrender charges for large withdrawals prior to maturity or when withdrawing in excess of the 10% annual surrender-free portion
➖ Ordinary income tax owed on earnings during the withdrawal or income payout stage
➖ Fixed index annuities are not FDIC insured
➖ Fixed index annuities do not capture the full upside of the stock market
➖ Caps, participation rates, spreads, and declared fixed interest rates are all subject to change on an annual basis
➖ It is possible during a down year or years to have zero-interest crediting
➖ Some carriers returns are capped, meaning there is a limit on how much you gain in a year
I have a 401k. Why would I need a Fixed Indexed Annuity?
Having a 401k is a key component of a strong retirement plan and a good vehicle for growing your retirement while you are working. However, as one gets closer to their retirement years diversifying your portfolio to balance the risks and growth is a wise move. When you have a shorter time horizon, meaning less years until retirement, you have less time to recover if the market was to take a dip, have a recession, or a hiccup. This can be financially devastating to a portfolio.
FIAs are a smart way to minimize risk for retirees who cannot afford to lose their hard-earned money. FIAs are about preserving what you have accumulated from your working years and growing it with no risks.
If I want to learn more about Fixed Indexed Annuities, where do I begin?
Individuals interested in learning more about FIA should speak to a licensed financial professional for assistance. We would be happy to assist you on your retirement journey. Give us a call at 270-904-6070 for professional help today or click the button below.
Safeguard Insurance, LLC
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Insuring your health, life, and retirement.
Phone: 270-904-6070
Email: education@safeguardky.com
1600 Scottsville Rd, Suite 100
Bowling Green, KY 42104
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