The Misunderstood FIA
In recent years, we have seen an uptick in the interest of fixed indexed annuities (FIAs), but there is still a great deal of misunderstandings about this retirement product – down to even its most basic principles.
Let’s start with defining FIAs. These products are long-term retirement options purchased from an insurance company that guarantee principal protection, tax-deferred growth, and reliable income. If you are looking for a quick-hitting overview on FIAs, check out this animated video.
Now that you are up to speed on the basics, read on for accurate, detailed information to separate fact from fiction on three hot topics.
FIAs and Investing in the Stock Market
Comparing an FIA contract to stock market investing is like comparing apples and oranges. You invest in the stock market for growth potential; you buy an annuity for guarantees. FIAs are insurance products intended to add balance to your portfolio with guaranteed protection against market loss and the ability to convert accumulated savings into a guaranteed lifetime stream of income that you won’t outlive.
FIAs and Expectation of Growth
FIAs are unique in that they offer a growth opportunity over a set period of time while protecting your principal from market loss. FIAs credit interest based on the performance of a market-based index, like the S&P 500, and once the interest is credited to your principal it can’t be lost due to market swings. While your returns are connected to the index, the principal on the investment is always protected as long as you continue through the length of your contact. FIAs are best for those who seek a long-term retirement saving vehicle that protects savings from external factors, like market swings, adds balance, and offers lifetime income.
Fixed and Variable Annuities
There are several different categories and types of annuities, and it’s easy to assume a product with a similar name will have similar results. This is particularly true when discussing fixed and variable annuities. While there are several benefits inherent across all annuities, like tax-deferred earning growth, there are key differences among them. For example, with fixed indexed annuities you can’t lose your principal or interest credited, even when the index goes down. With variable annuities, you assume the risk and you can lose value. Consider your financial needs and goals, as well as your tolerance of risk, to determine which type of annuity better serves you.
FIAs can be a valuable option as you plan for retirement, especially when you are armed with a full and accurate picture of the financial product. For more resources on FIAs, make sure to sign up for our newsletter and follow us on Facebook and Twitter.