2018 Best Fixed Index Annuities Pros and Cons


What are annuities?

Annuities are effective retirement investment solutions.

This is how annuities work. You pay the insurance company a lump sum amount or a fixed amount through installations.

This money stays invested for a fixed period of time and keeps growing with interest, after which the company pays you with a regular income till the end of your lifetime. It is very much like a self funded pension plan.


What are Fixed Index Annuities?

Every annuity comes with a fixed interest rate, that determines the amount of returns which the principal investment will generate.

In case of fixed indexed annuities, the interest rate of return is linked with the performance of a stock market index like the Dow Jones Industrial average (DJIA) or the S&P 500.

While a minimum interest rate of return is guaranteed by the insurance company, a higher rate of return may be received if the market index performs well.

There is a maximum cap on the highest rate of return that might be gained and there are fees involved which are deducted from the total yield received by the investor.

Also, your investment is tax deferred till it starts paying up.


2018 Best Fixed Index Annuities Pros and Cons



One of the obvious advantages of a fixed index annuity is the opportunity for higher rate of return, in case the associated index performs well.

No matter how the market performs, your minimum interest rate of return is guaranteed. Plus your principal is protected.

These types of annuities provide better returns, than other types of conventional investments like certificates of deposit. Also, your principal investment keeps on growing tax free till you start withdrawing the returns.


In case you decide to withdraw your principal invested amount, before maturity, severe penalties are imposed.

So once you are invested in an annuity, you can’t touch the money until maturity period. Secondly, the maximum interest cap on returns and fees charged by the insurance company can eat into the profit substantially. That’s why it’s necessary that you read the fine print carefully, before signing on the dotted line. Consider the reputation and past record of the insurance company before going ahead with the investment.


When talking about the pros and cons of fixed index annuities, the biggest positive is that index annuities truly offer you the potential for gains based on market appreciation, without the risk of loss to your principal.

Your principal is not at risk, rather, it’s only the earnings from your principal are invested in potentially higher yield options. Thus, an indexed annuity is a safe asset with upside potential.

This explanation also gives you a good idea why these are called “Fixed Index Annuities”. Income from the FIXED account growth is used to buy options in a market INDEX for potential gain.

If the market rises, you may profit. If the market falls, the company has wagered only your income from the FIXED account, so your principal at all times remains safe.

Indexed annuities provide principal protection with higher interest rates than a CD. However, buyers should never expect equity type returns.

Just remember that annuities are complex products. It is important to understand the product and its nuances before signing on the dotted line.


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