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Fixed Indexed Annuities 101 - fixed indexed annuities suze orman


Fixed Indexed Annuities 101-fixed indexed annuities suze orman

Fixed Indexed
Annuities 101
Experience freedom. Enjoy a retirement
complete with guaranteed lifetime income,
market downside protection, and minimal risk.
We answer all your questions inside.
What is a fixed I have a strong 401(k) or
indexed annuity? similar account. Why would
How does it work? I need an annuity?
A fixed indexed annuity, or FIA, is a retirement A strong 401(k) is undoubtedly a key component of
product that provides you guaranteed income one's retirement plan, but diversifying your portfolio
during your retirement. to balance risk and growth is a wise move. FIAs are
FIAs are sold by insurance companies. When you a smart way to minimize risk for retirees because
purchase an FIA, either in a single lump sum or you won't lose money during a market downturn.
in multiple payments over time, the insurance As long as the contract funds are not withdrawn
company invests that money and credits interest through the surrender period, the principal is
to your annuity. Unlike a 401(k), however, the guaranteed by the insurance provider.
insurance company absorbs the risk of market
downturns, guaranteeing that you will receive -
at minimum - the principal amount you paid at What are the benefits and
purchase. In other words, the value of your money downsides of FIAs?
will never decline due to market loss for as long
as it is in the FIA; but it does have the opportunity The key benefit of an FIA is that it offers growth
to increase, depending on the performance of the potential with principal protection from market
index it is linked to. loss. Unless you surrender your contract early, you
cannot lose money. Your principal is guaranteed
even if the linked index drops. Another benefit is
What is the difference that, as with a 401(k), any growth is tax-deferred.
between FIAs and variable It's also worth noting that if withdrawn before
annuities? retirement age or the full length of the contract,
FIAs are subject to surrender charges. FIA returns
FIAs guarantee a minimum fixed rate of return, are also often capped, meaning that there is a
regardless of market volatility, whereas the rate limit to how much the annuity holder can gain in a
of return for variable annuities depends on the year, even when the index performs very well. But
performance of the linked stock, bond, or money remember, even if the index goes down, the FIA
market investment. With FIAs, the insurance doesn't lose value.
company assumes the risk, protecting the principal
from market volatility for the annuity holder. With a
variable annuity, this is not the case; the consumer "The key benefit of an FIA
assumes the risk.
is it offers growth potential
with principal protection
from market loss. Unless you
surrender your contract early,
you cannot lose money."
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Is lifetime income really If my FIA balance grows one
guaranteed? year, can I lose those gains
Yes, as long as you hold the annuity for the full term the next?
of the contract. Liquidating annuities before the
contract ends will result in a surrender fee, which Once interest is credited to an annuity, it is locked,
varies by provider. Before purchasing an annuity, and is not subject to market volatility. The timeline
speak to the insurance provider to find out the exact for when gains are locked in depends on the
terms of these fees, and evaluate your comfort level crediting strategy. For most FIAs, gains are locked
with the terms of the contract. in at the end of each year. If, for example, an FIA
purchased in the amount of $100,000 were to
earn 3% in its first year, the insurance company
Are FIAs safe to purchase? would consider $103,000 to be the new "floor,"
guaranteeing this amount through the following
FIAs are safe to purchase for anyone who is year. The same process occurs annually through the
comfortable with the structure of the product. A end of the FIA contract.
risk to an FIA is if the insurance company becomes
insolvent and cannot pay its claims, but in this
highly unlikely scenario, state-run insurance
guaranty associations could cover a portion of
the annuity. Still, it is recommended that anyone
interested in an FIA, or any insurance product,
consider the financial strength rating and historical
performance of the insurance company from which
they intend to purchase.
"Once interest is credited
to an annuity, it is locked,
and is not subject to
market volatility."
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