Fixed indexed annuities are a hot button topic in the media and insurance industry. Some people love them, some people hate them. There is a lot of information out there about indexed annuity products, but unfortunately some of it is biased. It’s important to consider the source when you are researching fixed indexed annuities. Make sure that they are unbiased and truthful with their information. Even some reputable news sources like The Wall Street Journal and Forbes Magazine offer one-sided pieces about indexed annuities. These products are certainly not right for everyone, but indexed annuities have benefits unlike other financial products and can be useful in some retirement planning. LifeHealthPro’s Peggy Bresnick separated fact from fiction in the article “Debunking the negative myths about FIAs.”
People who are looking for a steady source of retirement income can often benefit from fixed indexed annuities. They also offer value to those who prefer CDs or safe-haven bonds. The big challenge for advisors when it comes to selling indexed annuities are the people who come into a meeting with preconceived notions about fixed indexed annuity products that aren’t completely true. FIAs can be complex and they do carry risk, but before writing off the products it’s important to balance their pros and cons. A recent study from Athene found nine reasons that people often shy away from indexed annuities. Since most people buy fixed indexed annuities for a minimum of five years, the study found that 73% of people worry about their lack of liquidity. Seventy-one percent of people said that they prefer equities and 60% think that FIAs are too complicated or confusing. Indexed annuities often charge you for taking your money out before the surrender period expires and 52% of those surveyed are in opposition to early withdrawal penalties. The other reasons people don’t buy a fixed indexed annuity were that 51% said they didn’t have the funds, 45% said they would rather buy a CD or money market, 43% preferred a traditional fixed annuity, 40% preferred a deferred variable annuity and 37% wanted a bond or bond fund instead.
Advisors who don’t sell fixed indexed annuities typically say that it is because their clients don’t like them. There are definitely people who have their mind made up when it comes to FIAs and cannot be convinced of their benefits. But many people with misinformation just need to know the truths about indexed annuities before they decide if the products will work in their retirement income planning. Bresick listed the important benefits of fixed indexed annuities in this article. FIAs can help you accumulate retirement assets at the same time that they protect the assets you have already saved. Your principal is protected and the value of your indexed annuity grows tax-deferred. You receive a guaranteed interest rate and have the potential to gain even more interest if your stock market index performs well. Indexed annuities protect you from down markets because your money isn’t directly invested in the market, but they also offer the potential to take advantage of market gains. Many indexed annuities guarantee lifetime income through payments or withdrawals. You can often withdraw up to 10% of your annuity value each year without being penalized. Death benefits are another option with indexed annuities, so your heirs can receive a lump sum payment or continue your periodic payments. Fixed indexed annuities have even more features that you can add on to meet your individual needs.
Fixed indexed annuity products have many benefits, both inherent and optional, that can make them a valuable tool in retirement income planning. They can also be complex and costly, so you must know exactly what you are getting when you purchase a fixed indexed annuity. Speak with an expert in these products before making your decision, so that you know you are choosing a FIA for the right reasons.
Written by Rachel Summit