What Is There To Like About Fixed Annuities?

Many of us are trying to save for retirement, but are having a hard time

. We know our money has to be kept safe, yet we still need to make decent returns. Bank CDs and savings accounts may be safe, but interest rates are low these days. Stocks have the potential to give us higher returns, be we already know that they are risky!

Is there a middle ground for savers who want decent returns with a guaranteed return? You may be able to find that middle ground. It could be a fixed index equity annuity. These products are considered safe, and they could help you reduce your risks while growing your returns. Consider some pros and cons of fixed index annuities.

These products do come from insurance companies, and that is because they do use some of the same actuary tables that life insurance does. However, they do combine some aspects of insurance with features of an investment product. An agent or financial professional, who is licensed to sell annuities in your state, is a good place to get more information.

Also note that I am talking about fixed annuities, and not variable annuities. These are very different things, and variable annuities can be more risky. You have to learn the difference. Beyond that, contracts can vary by company and state. You must always understand the actual terms of any individual contract that you are considering.

These products base their returns on a market index. A common example is the Standard and Poor's 500. When the index rises, returns should increase. What is different about a market indexed annuity than the market itself. If the index goes negative, a guaranteed return, will keep you from losing all of your hard earned money. That is why many financial pros advise their clients to consider these products.

There are a couple of drawbacks you should consider. In general, these are long term savings vehicles. If you take out your money early, you will probably get charged a penalty. Be very certain that you can keep your money in place for the length of the surrender period. Otherwise, you may be penalized. People only really profit when they plan to keep their money in place past the surrender period.

When the market goes up a lot, the market cap will reduce your own returns. The participation rates will reduce your profits during market rises. Of course, you must always balance that potential limit against the lack or risks. You are protected from losing money.

If you need a safer investment, with decent returns, you may want to talk with a financial professional about fixed index annuities.

by: Marilyn Katz

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