Are you prepared to start shopping for a fixed indexed annuity? Here’s a question about FIAs that you probably never thought about but should if you’re shopping for one. Say that your broker tells you that the S&P 500 index tied to the FIA has a 50% participation rate – i.e., the percentage of the market gain you will actually pocket in a good year.
Is this the case for just the first year or for all 10 years in which there is a surrender period?
The superficial answer: It depends. And what is certain most of the time is that you will never know the deeper answer unless, and until, you actually own the annuity, assuming you don’t go out of your way to ask your broker the question. Most people do not –and that’s unfortunate when you consider that many people buy a FIA not for the option of guaranteed lifetime income but rather for its growth potential.
This is just one of several FIA shopping reminders crucial to bone up on before you buy one. Make a point to ask your broker lots of questions; if you’re taking anything for granted, you’re often making a mistake – and frequently a big one.
Investing in the right FIA today is the best bet for most people. Rates are generally too low in Multi-Year Guaranteed Annuities (MYGAs), the most popular traditional fixed annuity. On variable annuities, meanwhile, fees are too high and the risk too great as there is no protection from a market decline.
“The best of the best options available today are generally FIAs,” our annuity expert says.
The Annuity FYI Checklist: How to Shop for Fixed Indexed Annuities provides shopping tips including the importance of analyzing the emphasis of the FIA you are eyeing, the need to compare multiple index options within the FIA and how to make sure you’re dealing with a credible investment advisor with a clean record.
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