By: Laura Adams
More myths swirl around annuities than any other financial product. Some of the confusion is due to the fact that annuities have changed over the years, offering more options and benefits than ever.
One of the most flexible types of annuities is a fixed indexed annuity (FIA). A FIA is a financial product that’s sold by insurance companies. The insurance company guarantees to protect your principal and give you the potential for growth linked to an index, such as the S&P 500. Plus, you can receive guaranteed lifetime income with a FIA
It’s important to understand the FIA facts as it relates to these 5 common myths:
Myth #1: If you have a retirement account you don’t need an annuity
Fact: One of the major benefits you can get from a fixed indexed annuity is the guarantee that you’ll never run out of money during retirement.
Having funds in a retirement account such as a workplace 401(k) or an Individual Retirement Account (IRA) is a terrific asset. However, those accounts don’t guarantee to give you an income stream that will last for your entire life.
Myth #2: All annuities charge high ongoing fees
Fact: The only time you’re charged a fee with a fixed indexed annuity is when you choose to add an optional policy rider.
For instance, if you choose a death benefit rider, which guarantees a payout to your beneficiary, or an income rider, which guarantees to pay you a set interest rate, you generally are charged a low fee in exchange for these benefits.
Myth #3: Annuities are too complex for the average person
Fact: An annuity is simply a contract you make with an insurance company get financial benefits in the future, such as during retirement. When you buy a fixed indexed annuity, you set aside some of your retirement savings in return for a future stream of income from that pool of money.
Myth #4: You always lose the balance of an annuity if you die
Fact: Fixed indexed annuities can allow you to pass the money in your annuity to one or more named beneficiaries after your death.
You can even choose to set up your annuity as “joint life” in order to provide you and your spouse guaranteed income for life, no matter how long each of you live. Another popular option is called a guaranteed return of premium, which insures that your beneficiaries receive the entire amount of money you put into the annuity.
Myth #5: Annuities are only for older investors
Fact: No matter your age, an annuity can be a smart way to diversify your financial portfolio.
Having a portion of your assets in a fixed indexed annuity can provide balance and stability for your retirement. Opting for guaranteed lifetime income gives you peace of mind that you’ll always have a dependable stream of income to depend on as you age.
Today’s fixed indexed annuities offer a range of benefits designed to protect your retirement savings from market loss, give you income for life and allow you to pass along money to your heirs.
To learn more about FIAs, be sure to watch this video: What Is a Fixed Indexed Annuity?