Do you know these 3 pros of FIAs?
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From butter boards to robot vacuums, when a product or trend becomes popular, we tend to pay attention. While they’ve been around for nearly three decades, fixed indexed annuities (FIAs) saw record-breaking sales of $79.4 billion in 2022, 25% higher than 2021 and 8% higher than 2019’s record. What makes FIAs popular now? And, more importantly, how do you know if a FIA is right for you?
FIAs have several features that may be helpful depending on your circumstance, needs and comfort with risk. Here are a few hypothetical situations where people chose a FIA and why the choice worked for them.
1. Tax-deferred growth potential
Marvin, age 60, is planning on retiring at age 70. Now that he’s within 10 years of retiring, he’s more concerned when the markets go down and his 401(k) balance drops. He put a portion of his retirement savings into a FIA because he wants growth potential without paying taxes on the growth until he withdraws money.
He considered options that paid a fixed rate, like CDs and fixed annuities, but opted for a FIA. He liked that earnings were still linked to a market index, but not directly invested there. More importantly, he liked that his initial principal was protected from market loss.
Once he chose a FIA, Marvin looked at his index options. He could have chosen to earn index credits based in part on the performance of a familiar benchmark index, but he was intrigued by what his financial professional told him about custom indices.
A custom index is generally created specifically for a FIA, and uses advanced technology, predefined rules and automatic tracking to monitor performance. It can also react faster to changes in the market. Marvin and his financial professional agreed on a custom index option because of the growth potential and additional diversification it provided.
2. Manage market risk
Pam, age 65, wants to know her principal is guaranteed from loss, even if the market takes a downturn. She’s within five years of retirement and wants to protect what she’s saved, knowing she may need to start withdrawals before she benefits from any recovery.
A FIA also provides some protection because it offers diversification. She can spread funds over multiple index options which can help smooth out returns during volatile times. She can choose from custom indices that monitor growth of emerging market funds, U.S. stocks, European stocks, high dividends or low volatility.
3. Guaranteed income you can’t outlive
Nadiya, age 62, has been a conscientious saver while employed, but is concerned about how to turn her savings into income once she retires. She’s considering a FIA with an income rider which will provide a guaranteed “retirement paycheck” when she’s 67. This will help provide income earlier in retirement and allow her to wait until age 70 to claim her Social Security benefit. By waiting until age 70, she can maximize her Social Security payment.
She’s working with her financial professional to develop a full retirement income plan, and appreciates the freedom of knowing this FIA can create a guaranteed stream of income she can’t outlive.
Fixed indexed annuities can be a plus for many reasons. One of the best ways to decide if a FIA is right for you is to work with your financial professional who can discuss the pros and cons and whether a FIA fits your situation. Need to find a financial profressional? We can help!
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