A Fixed Indexed Annuity is an insurance product that provides a retirement paycheck and lots of flexibility to the account holder. When you buy an annuity contract, you’ll get to decide where you want your money allocated, and your assets will grow tax deferred. The insurance companies backing the FIA can guarantee your money will never be lost or go down in value because fixed indexed annuities are investments affected by the market index and are protected from market downturns. We often recommend this long-term investment option to clients because of the “safe money” guarantee fixed indexed annuities are known for.
While FIAs are a terrific product, there are some downsides. The income stream they will provide in retirement are based on the performance of the index chosen so there’s a limit to potential earnings. And insurance companies use cap rates to manage risk in unexpected market increases. If they establish a cap rate of 4% when the linked market index goes to 9%, the earnings for that term will be 4%. Because fixed indexed annuities are tax deferred, money is taxed when it is withdrawn from the account. Early withdrawals are allowed before age 59 ½ but may be subject to an additional 10% in taxes.
Fixed Indexed Annuities offer security, flexibility, and lifetime earnings which makes them a great tool in retirement planning. Call Alloy Wealth Management at 800-689-3935 if you have questions about FIAs or would like to discuss diversifying your investment portfolio. We’d love the opportunity to help you achieve your financial and retirement goals.