Why You Should Consider A FIA
By Tom Hegna
In the past, some consumers looked at Fixed Indexed Annuities, or FIAs, as “overcomplicated products,” that over-promised and under-delivered. That’s no longer the case. Even with today’s volatile market, these products have performed extremely well over the past 15 years. After raising the overnight rate this past December, Janet Yellen and the U.S. Federal Reserve kept rates stagnant in the first quarter of 2016, with global economic uncertainty as the main reason. If the Fed is unclear of the economy’s future, how can you make clear financial predications?
Rather than attempting to predict the future, why not alleviate risk with a diversified retirement plan? FIAs are reliable products that can provide peace of mind and balance to anyone’s portfolio. Here are a few reasons why you might include FIAs as part of their retirement plan:
- Accumulation Without Market Risk – If you need peace of mind that their principal won’t go down, FIAs can offer a unique balance and security against turbulent markets. If the index is performing well, you are able to capture a portion of the upside and will see interest earnings somewhere closer to the cap. If the index is performing poorly, the downside is limited with the guarantees built in. If retirement is all about taking risk off the table, an excellent way to remove the market risk is with a FIA.
- Tax Deferral – The spring is a good time of year to think about your taxes. When you file your taxes, ask yourself if you have a plan for taxes in retirement—you would be surprised how many people don’t take taxes into account. With a FIA, while there usually is income tax paid when withdrawals are made, you can have the benefit of tax-deferred earnings, which will allow you to earn interest on the principal, interest on the interest, and interest on the tax savings!
- Peace of Mind – Having a secure source of income can help add peace of mind; in fact, Towers Watson produced an entire whitepaper about the correlation between income and happiness. The stream of guaranteed income offered by FIAs acts as a consistent paycheck, though there can be early withdrawal charges for certain withdrawals before the end of the surrender charge period, so that it’s easier to plan for purchases and costs in retirement, which can really help you sleep at night.
In addition to these three reasons of how FIAs can benefit your retirement portfolio, there are several additional advantages, including avoiding probate and protecting your spouse. Over the past few years, we have seen dramatic increases in FIA sales across the United States. As life expectancy increases and more people purchase annuities, these very well may be the highest payout rates you will see for the remainder of their lifetime.