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There are many valuable features to Fixed Indexed Annuities. They are an important financial tool that should be a part of your retirement plan though not necessarily the whole plan.
Here are some leading thoughts on how an FIA can contribute to your overall investment strategy and how they can complement your existing retirement plans:
A Middle-Road Approach
Ordinary fixed annuities will lock you into a specific rate regardless of market action, while variable annuities put you at considerable risk of loss when the market fluctuates. Fixed Indexed Annuities take a middle of the road approach that combines safety with the possibility of higher returns.
With an FIA, your principal is always protected - so you can't lose money in market downturns. But you can still earn money based on the market growth index. Basically, your earnings follow slightly behind the market index as it moves upward but the account does not follow when the market goes down.
During down years, your account may experience a flat year, as in will stay exactly where it is with all of your original investment and all gains from previous years. Though there might not be any growth that year, experiencing 0% growth on a down year is much better than experiencing a negative 30%, wouldn’t you agree?
A Tax-deferred Haven
FIAs are especially well-loved by retirement strategists due to their tax-deferred status. You can gain compounded interest and pay no taxes on it for years or even decades. Until you actually take out and use the income, it is 100% non taxable. And even when you do use it, there are ways to minimize potential tax impacts.
An FIA shouldn't be used as a cash cow before you reach retirement. That could threaten its tax advantages. Plus, withdrawing too much money early on can subject you to early surrender penalties - the earlier the withdrawal, the steeper the penalty. But, most FIA’s allow for about a 10% withdrawal per year, even during the early years, without a penalty.
Multiple Indexing Options
Most commonly, an FIA will be indexed against the S&P 500, but this is not always the case. There are many FIAs nowadays that use international indexes, value indexes, or even a gold index.
Part of the FIA shopping process is deciding on which indexing method you are most comfortable with. Plus, you may even want multiple FIAs so you can index them differently for added security. Or, you could get a single FIA that uses multiple indexes. An adviser who specializes in Fixed Indexed Annuities can help you make sure that you end up in the right product with the right indexing methods, to accomplish what you need it to.
Lifetime Income Riders
An FIA won't replace your life insurance policy, Social Security income, or health insurance policy. It isn't a magic elixir that solves all financial woes and eliminates the need for any other form of financial planning. But it does offer a balanced way to save and earn with minimized risk. That's great for retirement investing.
But the real benefit that draws many to FIAs is the ability to use them for lifetime guaranteed income. The income feature found in most of these FIA accounts can guarantee thousands of dollars of income annually for the rest of your life. Even if you go over your original principal investment, the income stream keeps coming.
It’s like insurance protection for your retirement savings! Now that's a truly attractive feature.
Planning for retirement and considering all your options? Fixed index annuities can be a vital component in your overall plan. Talk to the expert financial consultants at Summerlin Benefits Consulting today to learn more on how an FIA can fit into your retirement plan.