6 Fixed Index Annuity Myths

You have many options available to you to help you provide for future income. A fixed index annuity can be a great way to provide a guaranteed income stream during retirement. But there are many common misconceptions about these financial vehicles. In this article, we will bust 6 fixed index annuity myths.

1. They Are Full of Hidden Charges

When you purchase a fixed index annuity the financial professional you are working with and the insurance company must disclose all fees. You need to be aware of withdrawal penalties that you can incur if you take out funds within the accumulation period. You also should note that riders have many benefits but also come with additional charges.

2. FIAs Are Not Tax Efficient

FIAs are meant to serve as long-term tax-deferred products. This means that your premiums grow without you having to pay tax on them until you take withdrawals. This is an advantage because it allows you to build more savings than if your earnings are taxed yearly.

3. They Cannot Keep Up with Inflation

With a FIA you can purchase a cost of living adjustment rider that will index your payouts for inflation. A fixed index annuity should also not be your only financial vehicle; you should also use other ones to stimulate long-term growth.

4. FIAs Are Not Liquid

FIAs are designed for long-term planning. This means you are meant to put the money in the annuity for an extended period and let it grow. However, in exchange for tax-deferred growth, protection from market loss, and guaranteed income you must deal with lower liquidity than other products. During the accumulation period there will be a small percentage of the premium that you can withdrawal penalty free.

5. A Fixed Index Annuity is an Investment

A fixed index annuity is an insurance product. It does not directly participate in the stock market, so your money is protected from downturns. However, part of your premium is tied to the stock market index. This allows you to benefit from upward market trends owning stock. It allows you to have both growth potential and risk mitigation.

6. You Do Not Need Life Insurance and an Annuity

Both life insurance and annuities serve a distinct purpose. Life insurance is designed to provide for your loved ones upon your demise. Whereas annuities provide you and potentially your partner, with guaranteed income. You will want to discuss how to use both with your financial planner.

A Fixed Index Annuity as Part of Your Retirement Strategy

Before purchasing a fixed index annuity it is important to discuss the topic with your financial professional. Remember an FIA should just be part of your portfolio for a secure retirement.

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