5 Myths About Fixed Indexed Annuities

Let’s be honest: Wall Street isn’t a big fan of Fixed Index Annuities (FIAs). Why? Because these products are offered by insurance companies, not big banks or investment firms. If you put your money in an FIA, that’s money NOT going into Wall Street’s pockets, and they’d much rather see your investments flow their way. 

 

That’s part of why you might hear a lot of “myths” about FIAs from sources with a vested interest. The reality is, FIAs have been a popular choice for people looking for a solid bond alternative, especially since they let you grow your nest egg without exposing you to wild stock market swings. Let’s clear up some common misconceptions:

 

1. “FIAs aren’t tax friendly.”
Actually, they’re pretty tax efficient. Your money grows tax-deferred, meaning you don’t pay taxes on the interest until you take it out. Retirees can even time withdrawals to take advantage of being in a lower tax bracket as they get older and have lower income. 

 

2. “They can’t keep up with inflation.”
Not true! FIAs give you some growth potential because they’re linked to things like the S&P 500 (but you’re   not   directly in the market). Over time, that growth can outpace traditional guaranteed accounts like CDs, and money market accounts helping your money keep up with rising costs.

 

3. “They’re risky because they’re tied to the market.”
Nope! FIAs are only   linked   to a market index, they don’t go down if the market crashes. You get a share of the upside if the market does well, but you’re not exposed to the downside.

 

4. “These things are too complicated.”
The basics are simple: an FIA lets you save now and enjoy steady income later. Your earnings are tied to a market index, but you don’t lose if the market goes south.

 

5. “There are hidden fees.”
FIAs are regulated and required by law to spell out all fees clearly. It’s all in your contract, no surprises. Regulators make sure you know exactly what you’re signing up for.  Most accumulation FIAs have NO FEES. 

 

A few things to keep in mind:   Early withdrawal charges can apply if you cash out early (called surrender charges), and you may face IRS penalties if you withdraw before age 59½. 

 

Fixed Index Annuities have become a go-to choice for many looking for steady growth, protection from losses, and a tax-efficient way to save for retirement, especially when compared to traditional bonds or CDs which do not grow tax deferred. If you want growth without the rollercoaster of the stock market, they’re worth a look.