In most cases, the “truth” about fixed index annuities (FIAs) depends on who you’re talking to. While the concept of annuities – particularly FIAs – may seem too complex and risky to mess with, the truth is surprisingly simple! To help you separate fact from fiction, our insurance experts are here to tell you all about some common FIA myths you should ignore.
What is an FIA?
Essentially, an FIA is a low-risk income stream to supplement your retirement funds. An FIA isn’t nearly as risky as a variable annuity, since the risk is with your insurance company, not you. If investment performance is more than what your insurer needs, the difference is added to their company surplus. If performance is low, they bear the loss. Fixed index annuities also guarantee a minimum interest rate, generally between 1% and 3%.
The FIA Myths You Should Ignore
Now that you’re up to speed on what exactly a fixed index annuity is, we can get to the FIA myths you should ignore and why you should ignore them!
1. An FIA is a Direct Investment
Among the most popular FIA myths you should ignore, this one sits at the top of the list. While labeling it under the general cloud of “investments” may be tempting, a fixed index annuity is more nuanced. Simply put, think of an FIA as a risk-free income stream. While your gains won’t be as high as what you may stand to earn with riskier investments, it’s a smart way to add some cushioning to your retirement funds without risking the volatility of riskier options.
2. My Insurer Keeps it All After I Die
Another common misconception about fixed index annuities is the notion that your insurance company keeps your money if you die before taking payments. If this myth has instilled in you a healthy wariness of FIAs, you have been living in fear for naught! In fact, contrary to popular belief, you can choose a beneficiary to inherit the death benefit included in your annuity contract if you die before you start taking payments.
3. I'll Lose Money in Index Downturns
As we touched on earlier, an FIA is not a direct investement, making it a low-risk option by design. If you are risk-averse, you can rest assured that the money held in your indexed annuity will remain impermeable to the impact of market downturns. With this built-in protection, an indexed annuity could be a sound option for you, if you are looking for ways to supplement your retirement funds without subjecting yourself to an unstable market.
4. I Don't Need One - I Have My 401(k)
Last but certainly not least is the widely-accepted myth that you don’t need an indexed annuity if you already have a 401 (k). The most obvious fault in this line of thinking is regarding an indexed annuity as synonymous with your 401 (k). While your 401 (k) is a retirement savings vehicle, it’s finite. An indexed annuity serves as an extra stream of income. While you may not need an indexed annuity, you can retire much more comfortably with that extra income!
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A Final Caviat
While it may not necessarily be a common myth, there is a final FIA caviat we would be remiss not to share. When it comes to the interest rates for an FIA, the insurance company determines those rates. Since these rates can change monthly, quarterly, semiannually, or annually, it’s imperative that you understand how and when the interest rate changes before you buy.
The Best is Yet to Come
With your golden years ahead of you, the best is yet to come. No matter what season of life you’re in, our insurance experts can help you start planning now, so you can retire in style later. If you are ready to find out how our team at Lifetime Insurance can enrich your future, give us a call at (972) 771-2622 or visit our website!