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There is a lot of talk among those preparing for retirement these days about fixed index annuities (FIAs), and there is also a lot of confusion. In part, it's easy to get lost in the jargon. On the other hand, "propaganda" both pro and con concerning FIAs can sometimes be misleading.
That's why it's important to get a clear understanding yourself as to what FIAs can and cannot do. They can be a key component of your overall retirement strategy, but you need to know how they work before you can figure out how one might fit into your plans.
The Basics On How Fixed Index Annuities Work
As we go into 2020, FIAs are likely to be more popular than ever. Everyone needs to know at least the basics of how they work.
An FIA is "fixed" to a market "index" such as the S&P 500, which essentially means to a representation of the market as a whole. This kind of indexing provides greater stability than if you simply invested in one stock/bond or one type of industry.
FIAs are meant to be a relatively safe option but one that offers greater potential earnings than, say, a bank CD. There is some “give and take” though. Your principal is protected against loss, but your earnings rate may be capped. There may also be participation rates or fees that can affect final return each year.
Not all FIA’s are created equal and its important to work with someone who specializes in these products. An insurance agent with your best interest in mind, will explain all of these distinguishing factors of the FIA that you are considering and will help you make sure that it fits your needs and that you are comfortable with how it will perform for you.
Many FIAs do offer rates high enough to be very attractive, especially for a consumer who is looking for a guarantee of their principal and/or growth, in a down market.
The 5 Major Benefits Of FIAs
There are five major benefits that FIAs bring to the table that make them a key part of a retirement income plan.