Is retirement quickly approaching? Are you currently exploring tools and products that can help you enjoy a financially stable and comfortable retirement? From IRAs to insurance to investment vehicles, you have a broad range of tools and products at your disposal.
An annuity is one such tool. Annuities are often used to generate income, minimize taxes, manage risk and more. There are several types of annuities, and each is used to achieve specific objectives.
One increasingly popular type is a fixed indexed annuity. These annuities are unique in the way they offer growth potential while also limiting downside risk. Fixed indexed annuities can also be used to create a guaranteed* lifetime income stream. Below are a few common questions and answers about how to use a fixed indexed annuity to protect your financial stability in retirement:
Can your assets grow in a fixed indexed annuity?
A fixed indexed annuity is a deferred annuity, which means your funds inside the annuity have an opportunity to grow and accumulate before the contract is annuitized and converted into income. Deferred annuities are categorized based on the way the funds accumulate. There are fixed annuities, which pay interest, and variable annuities, in which growth comes from market returns. Variable annuities often have downside market risk.
Fixed indexed annuities offer the safety of a fixed annuity with some potential for growth. Your growth comes from interest payments. However, your interest rate is based on the performance of a market index. If the market performs well, you may receive more interest. If it performs poorly, your interest rate could be lower.
In most fixed indexed annuities, you don’t have downside market risk. Even if the index has a negative return, you won’t lose money. That’s because most fixed indexed annuities have what’s called a guaranteed* minimum interest rate, which is the least amount of interest you can receive in any given period. In this way, a fixed indexed annuity can often serve as a protective tool against loss.
What fees will you pay in a fixed indexed annuity?
Annuities are often perceived as high-cost financial tools. However, the cost of an annuity often depends on the specifics of the contract. Some annuities come with significant fees, while others may have minimal expenses.
Most annuities do have something called surrender charges. These are penalties you pay if you surrender your contract or take a sizable withdrawal during a specified surrender period, usually the first few years after you open the policy. However, you only pay the surrender penalty in those instances.
Fixed annuities often have minimal fees or none at all. Some policies offer optional benefits and features that may provide greater protection but also come with increased cost. Make sure you understand the costs of your contract before moving forward.
Can I take income from my fixed indexed annuity?
There are a few different ways to take income from a fixed indexed annuity. One is to annuitize the contract. When you annuitize a policy, its value is converted into an income stream that’s guaranteed* by the insurance company. The amount of income is based on the value, your age and other factors.
Another option is to take systematic withdrawals. This may be preferable to annuitization, because withdrawals don’t require you to sacrifice your contract value. Some policies even have additional options that guarantee* your withdrawals for the rest of your life.
Ready to learn more about whether a fixed indexed annuity is right for you? Let’s talk about it. Contact us today at Barry Levie Financial. We can help you analyze your needs and identify the right strategies. Let’s connect soon and start the conversation.
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
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