Are Fixed Index Annuities a Good Strategy For Retirement?

When reviewing their options many retirees ask “ Are fixed index annuities a good strategy for retirement?” First, we need to review what a fixed index annuity (FIA) is. An FIA is simply a contract between you and an insurance company. 

This contract outlines the details and terms of the annuity insurance policy you purchased. This document goes over the terms of your annuity, including the rights and responsibilities of each party. It also highlights how long your money needs to stay in the annuity to grow and when you can withdraw it.

It is possible to use specific annuities to provide income for life for their owners. For example, you may be able to have a potential reasonable rate of return. In addition, a fixed index annuity (FIA) can keep your principal safe. An FIA can protect your money no matter the market volatility. As a retiree, if you wish to secure your principal balance, fixed index annuities may be a good choice for you.

Who’s Who in an FIA?

Four main roles exist when speaking about annuity contracts. Specifically when it comes to fixed index annuities (FIAs). Also, it is crucial to have an insurance professional on your side that is knowledgeable about annuities. The main roles that are a part of the annuity process include:

This is the company that issues the annuity. They are responsible for back the guarantees of the annuity.

Usually, the contract owner and annuitant are the same people, but sometimes they are different people. The owner is the person who makes decisions about the annuity, like who the beneficiaries are.

The annuitant is the person whose life expectancy is used to calculate the annuity payment. This could be the same person as the contract owner, but it may be someone different in some cases.

When you die your beneficiary is the person that receives your death benefit. It’s important to name one or more beneficiaries. That’s because, without one, the money in your annuity is subject to probate. A death benefit can be paid without probate.

Understanding these aspects of an FIA may help answer your question, “Are fixed index annuities a good strategy?” Here at Tower Bridge, we believe learning about the annuity process is a valuable part of your decision.

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Fixed Index Annuity Explained

In your contract, the life insurance company will go over all of your annuity contract specifics. For example, your contract will specify which type of annuity you have like a fixed index annuity (FIA) or variable annuity. The contract will also lay out time frames and terms. For example, you may have a certain number of years that your annuity must grow without you taking money out. 

Of course, if you need access to your money sooner, there may be options for you. However, the annuity has a “surrender period”, which exists for all annuities. Taking money out during that period is usually possible without a fee.

Do Annuities Have A Death Benefit?

Certain annuities, specifically a fixed index annuity (FIA) allow for a death benefit to your spouse or beneficiary. You may have a survival clause in your fixed index annuity (FIA). 

Because many options are available, you have many choices. For example, maybe you feel that when you pass away, your death benefit should be paid out to your spouse all at once in a lump sum. Or perhaps, you’d rather your spouse receive monthly payments instead. No matter how you set up your fixed index annuity contract, be sure to take the time to go over the details.

Income Payments
When Can They Start?

To understand when your money can start to come out as income it is important to look at the terms of your fixed index annuity (FIA) contract. Also, you will most likely see wording specifying how much (in a percentage) you can pull out. For example, an annuity contract may provide for up to 10% withdrawal per year. 

But, some annuities offer more choices and flexibility in terms of how you can get access to your money. For instance, maybe you only want to get money once per year. Or, you may not need the income one year, but decide to increase your % of withdrawal the next year. Again, each circumstance is different but the key is: income payments usually have options.

We're Here to Help

With all the “who’s who” of annuities, you may have questions for us. We’d love to connect with you, learn about your situation, and show you how fixed index annuities can be a good strategy.

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