Pros and Cons of Fixed Index Annuities

Fixed index annuities are a safe money alternative that more people, especially seniors, are considering. They are a good way to protect one’s assets while at the same time gaining some profits.

With fixed annuities, one gets to earn a fixed amount of interest every year. Fixed annuities work in a similar way to Certificate of Deposits. Fixed index annuities, on the other hand, have the appreciation rate linked to a performance index. This means that the interest will increase should the performance index go up and vice versa. However, an investor cannot get zero interest in case the performance index declines.

Just like any other investment, there are advantages and disadvantages of using fixed index annuities. Before you decide to take up the investment, it is important to know the pros and cons so as to make an informed decision.

The Advantages of Fixed Index Annuities

One major advantage of fixed index annuities is the potential of gains without the risk of loss. Here is how the annuities work.

Once you invest the principal amount in a fixed index annuity, it remains safe at all times. This is because it is only the earnings from this principal amount that is subject to risk depending on the performance index. In case the performance index increases, there is potential for you to gain more. In the event the index declines, it is only the earnings that are wagered. Your principal, therefore, remains fixed regardless of the performance index.

Other pros of fixed index annuities include:

  • Better returns- Fixed index annuities generally provide better returns as compared to other financial investments such as Certificate of deposits.
  • Tax-deferred growth- With these annuities, your initial investment is able to grow without you having to pay taxes until you make your first withdrawal.
  • Liquidity- Unlike other conventional investments, fixed index annuities have flexible withdrawal privileges.
  • Lifetime income- With a fixed income annuity, you are assured of a lifetime income regardless of the index performance. It is, therefore, one of the best retirement investments available.

The Disadvantages of Fixed Index Annuities

The major disadvantage associated with fixed index annuities is the heavy penalty charges in case of withdrawal before maturity period. Once you invest in a fixed index annuity, you will have to wait until the maturity period is over before you can make a withdrawal.

Just like any other financial investments, there is so much more to fixed index annuities. If you are considering investing in a fixed index annuity, get in touch with us and speak to one of our agents who will give you more information and help you through the whole process.

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