I don’t know what it is about fixed indexed annuities that ignites such passion from financial advisors. It seems that they either love them or hate them, something I am opposed to when it comes to annuity products. You really have to look at the details of each individual product to see who it might work for and who would be best suited with another financial product. Even with the abundance of naysayers, fixed indexed annuities are increasing in popularity and have the sales numbers to prove it. More than $30 billion of indexed annuities were sold in 2012, showing that the guarantees they offer are valuable to many advisors and investors.
For a long time, investors had to decide whether they wanted to play it safe and protect their savings without earning much interest or risk their principal for the hopes of big gains in the stock market. Fixed indexed annuities are one product that essentially allows investors to do both. Mark MacDonald of Sage Financial Partners gives us his “4 Benefits of Fixed Index Annuities.” Unlike when you invest in securities or mutual funds, there is no risk of losing your principal when you purchase a fixed indexed annuity. You account balance is safe, no matter what happens in the financial markets.
You have the potential to achieve gains if the stock market index your annuity is linked to has a gain, but no worry that you will lose your account balance if markets are down. Your investment in a particular index shields you from market risk because you aren’t invested directly in the stocks. Your premiums and your earned interest are both tax deferred until you start receiving your annuity payments. And since your interest is compounded, it takes less time to earn more money that is tax-deferred. Finally, you have the unmatched benefit of guaranteed lifetime income. Contract terms differ with each fixed indexed annuity, but you can typically take 10% out each year without a penalty and some offer 10% up front bonuses. Fixed indexed annuities offer a lot of benefits that may make them a great match for your retirement portfolio.
Written by Rachel Summit
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