Questions to Ask When Considering Fixed Index Annuities

By Cathy DeWitt Dunn

As with all retirement income planning solutions, there are pros and cons to fixed index annuities. In order to protect yourself, it’s important to know what to look for when it comes to deciding if an FIA product makes sense for you. Here are a few questions to ask when taking a look at fixed index annuities:

Are annuities safe?

Are fixed index annuities a good investment?

How are your market gains limited?

Is there a cap on earning potential? Is there a fee? Is there a limit on the percentage of gains you can enjoy? Some annuities have all three. Be sure that you understand exactly what’s in play when it comes to how your annuity can participate in market upsides.

What are the “moving parts” of the contract? Depending on the product, insurance agencies can change a variety of factors that affect how your return is calculated. This includes changing participating rates, cap rates, and/or fees. Make sure you know what can change in your contract.

Watch Our Video Series

Does the product offer a bonus for purchasing? If so, there’s always a ‘cost’ to this. Nothing is ever free. In most cases, a bonus could limit your liquidity options.

Can you live without access to all of your money in the short term? While many FIAs allow you to access up to 10% of your money without penalty, you should consider your annuity a long-term part of your retirement portfolio. There are significant surrender charges for cashing out your annuity early. In addition, if you choose to begin your income stream prior to turning 59 ½ your distribution may be subject to an additional 10% federal tax penalty.