2021 Fixed Index Annuity Guide: Suze Orman and Annuity

2021 Fixed Index Annuity Guide: Suze Orman and Annuity


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Financial guru Suze Orman used to be a financial advisor and has a history in the industry.

She has direct experience in a way that some other notable financial personalities don’t.

She may be a bit in-your-face about her opinions, but what does she think about fixed index annuities? 

Does Suze Orman like annuities?

Orman said she believes “we will come to another harder time financially in the market” and that interest rates will continue to stay low for a long time.

So, if you are looking for guaranteed income, you may want to consider an income annuity, she said.

They are essentially a locked-in payment you receive every month in retirement from an insurance company for a set number of years.

You can either pay a lump sum up front before your retirement, or pay in through your 401(k) or IRA.

What is an FIA?

A fixed index annuity gives you more performance risk than a fixed annuity however more potential return.

It has less performance risk than a variable annuity but also less potential return.

It is also known as an equity indexed annuity, but the name is not appropriate as you are not actually invested in specific equity products.

As its name implies, a fixed index annuity is a type of fixed annuity in which the interest rate is determined in part by reference to an investment-based index such as the S&P 500 Composite Stock Price Index which is a collection of 500 stocks intended to represent a broad segment of the market.

As interest is credited, the interest earnings are locked in to the account value and the account will not participate in any future market downturns.

Because of this reference to an index, the annuity offers the ability to earn credited interest resulting from a rising financial market while at the same time providing the security and guarantees similar to those associated with traditional fixed annuities.

Is it better to buy an annuity from a bank or an insurance company?

Let’s start with the different options you have for the purchase of an annuity.

All annuities are sold by life insurance companies, whether you buy yours from the bank, a brokerage house or a local advisor.

The only difference is the number of choices that are available to you.

If you walk into your local bank to discuss annuities, they will be limited to one, maybe two life insurance companies.

Consulting with an independent advisor locally will allow that advisor to go out and find the best possible product to meet your goals.

There are more than 800 life insurance companies in the United States, each with their own unique products, so make sure you can review all the products that can meet your goals.

What is Income Value in an Annuity Contract?

The income value is what the life insurance company will use to determine your lifetime income.

How does an annuity work?

Annuities are easier to understand if you look at them as life insurance upside down.

With life insurance, we pay in small amounts and when we die, someone gets a large amount.

With an annuity, we pay the life insurance company a large amount, and they pay us small amounts for as long as we live.

It’s a safe way to ensure you never run out of income.

When the life insurance company is going to pay you a lifetime income, it’s going to calculate your first payment based on your income value, so the higher the income value, the better.

If you invested $100,000 and got a 20 percent income value bonus, you’d have $100,000 in real money and $120,000 in your income value.

If the life insurance company says your first payout will be 5 percent, you would much rather have 5 percent of $120,000, or $6,000, than you would 5 percent of $100,000, or $5,000.

How to buy an annuity?

There’s a lot to consider when you buy an annuity.

You should consider the strength of the insurance company.

To help, you can find ratings by agencies such as Moody’s, Standard & Poor’s or A.M. Best.

Then you need to consider the timeline for when you’ll need to begin taking the income, what the investment options are, the costs associated with owning the account, the amount of risk the annuity has and other features, including some that may offer assistance with nursing home costs.

What are the fees for annuities? 2021 Fixed Index Annuity Guide: Suze Orman and Annuity

You also need to think about the fees.

The commissions that agents earn vary greatly by product.

If you’re purchasing a variable annuity, commissions are part of your fees and are continuously paid to your agent for the life of the contract.

Variable annuities pay your agent similarly to a brokerage account.

If you’re looking to protect your assets with a fixed or fixed indexed annuity, commissions are paid to the agent by the life insurance company with their own dollars, and they are paid one time.

For example, if you put $100,000 into an account, the agent gets their commission from the company, and you still have $100,000.

You are not responsible for paying the agent anything, whereas with a variable annuity, your ongoing fees directly help compensate your agent.

When you are making a decision to invest in an annuity, make sure the agent discloses all of the fees in writing.

If you are looking to invest with risk into a variable annuity, those fees will be buried in the prospectus.

You can always call the company directly and ask them to disclose to you over the phone their mortality and administration fees, rider fees and sub account fees.

You won’t see most of these fees on your statement.

If you’re a variable annuity owner, you are probably paying fees in the range of 3 to 5 percent.

If you are purchasing a fixed or fixed indexed annuity, those fees should be told to you directly by the agent and they should be in the disclosure statements you sign when making the purchase.

Fees on these types of products usually range anywhere from 0.00 to 1.5 percent annually.

Should I buy a fixed Index Annuity?

They are the only product offering a guaranteed income for life.

Some will use part of their pension pot to buy an annuity, providing enough guaranteed income to cover retirement essentials, leaving the rest invested in drawdown to be used flexibly as and when required. 

When deciding whether to buy an annuity, think about these questions:

  1. How much are my expected living expenses?
    What is my expected income; include Social Security and any additional pensions?
    3. Is there an expected shortfall between my anticipated retirement income and expenses?
    4. Do I have the option to annuitize an existing 401(k) or 403(b)?
    5. What is the size of my expected nest egg at retirement? Will the income from my portfolio be enough to supplement my income streams?
    6. Do I want the security of knowing I have a lump sum or regular income payments in retirement?

After evaluating your answers to the above questions, you’re better able to decide the answer to “Should I invest in an annuity?”

In general, if you have a shortfall between projected income and expenses in retirement, you may want to investigate an annuity.

Additionally, if you would be happier with an additional income stream and either don’t have enough money in investments to add to your income for your entire expected retirement, then you might answer “yes” to the question, “Should I invest in an annuity?” 

The great thing about fixed indexed annuities is that they are a reliable retirement planning vehicle appropriate for people in a different stages of life.

It’s unlikely to be best to buy an annuity when you’re still working, but when you finally retire permanently a combination of secure income to cover the essentials and drawdown for the nice-to-haves is a solid approach.

However, there are a few rules of thumb to follow when thinking about purchasing a fixed indexed annuity.

Of course, always speak with your retirement planning professional to see what makes most sense for you and your family.

  • Mid-40s to mid-50s is a great time for many people to consider purchasing a fixed indexed annuity. Keeping a portion of your retirement pie protected is often important for those approaching retirement age in the next 10-15 years.  Knowing that you could have some guaranteed annual income from an annuity in retirement gives you the peace of mind to pursue additional growth investments and take care of family obligations.
  • In your mid 50s-60s, you’re more likely to be looking for safe options—you can’t necessarily afford to take the risks you previously could since it will be difficult to recover massive hits to your portfolio. Indexed annuities are extremely popular with this age group because of option of guaranteed lifetime income these products can offer.

Unlike some other retirement savings vehicles, there is no limit to how much money you can put into a fixed indexed annuity or certain age at which you’re eligible to buy a fixed indexed annuity.

In an era where many are looking for peace of mind and protection, it’s worth thinking about when considering if a fixed indexed annuity may be right for you.

Can you lose money in a fixed index annuity?

With a fixed indexed annuity, your money is not invested in the market, but it provides the potential to earn interest linked to an index. So your account value will never be credited less than zero if the index decreases. Plus your account value can grow if the index increases.

Would I have the flexibility to access my money if I need it?

Fixed indexed annuities are designed to be used as long term conservative investments that can act as the anchor to a financial plan. However, if you need to withdraw money, you can. Keep in mind, however, that depending on how much you take out and when, you may incur penalties and/or fees. These can vary by product and state. 

Is there a death benefit with a fixed indexed annuity?

Yes. Fixed indexed annuities offer a built-in death benefit for your loved ones that enable you to leave a legacy if you pass away. Depending on the product, there are a variety of options for beneficiaries which may include payment of a lump sum, regular income payments, deferral of receiving the death benefit, or taking over ownership of the annuity contract.

How will a fixed indexed annuity affect my taxes?

Annuities are tax deferred investment vehicles. You pay no taxes on any interest you earn until you make a withdrawal, so more of your money stays invested, any interest credited can continue to compound, and your assets may accumulate faster than with taxable investments like CDs.

Mintco Financial Team of Independent Advisors

2021 Fixed Index Annuity Guide: Suze Orman and Annuity

Suze Orman has been singing the praises of indexed annuities as a way to shield your retirement nest egg from market volatility for some time.

In her 2001 book, “The Road to Wealth,” Suze Orman tells readers that “if you don’t want to take risk but still want to play the stock market, a good index annuity might be right for you.”

“In my world, annuities really sell for four things and the acronym is PILL.

P stands for principal protection.

I stands for income for life.

L stands for legacy, and the other L stands for long-term care.

If you don’t need to fall for one or more of those issues, then you do not need an annuity, period,” says Michael Minter, managing partner of Mintco Financial.

Not everyone wants the same strategy and that is okay. That is why you work with an advisor to make a plan that suits your needs.

Give us a call and we can help you to decide if an Annuity is right for you and point you out in the right direction.

We have helped many clients all over the country towards their financial planning. Simple and Easy.

We can be reached online, phone and we do remote meetings through skype.



Call us at 716-565-1300


Contact Us


Call Us: 716-565-1300



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