Why Should I Buy a Fixed Index Annuity Over a Variable Annuity?

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About John Stevenson

John Stevenson, a prominent wealth protection educator, has been able to help thousands of people successfully strategize for retirement. With retirees living longer and retiring earlier, having a retirement income that cannot be outlived has been a growing concern for many seniors. His clients include teachers, business owners, executives, doctors, and entrepreneurs, to name a few. Not a single client has ever lost money due to market fluctuations. John is also an expert in structuring Tax-Free Retirement Accounts, which help his clients build wealth safely and enjoy an extremely low tax burden or even zero taxes in retirement. His services focus on assisting people to Retire On Purpose, not just leave it to chance.

Annuities are used by many people to ensure income during their retirement years.

All annuities share certain common features: an accumulation phase during which money is paid in, and a distribution phase, during which the money (and interest) is paid out in installments.

Some types of annuities are more stable than others, making them wiser investments for many retirees. Keep reading to learn more.

What Are the Different Types of Annuity?

Annuities vary depending on the degree of risk involved – and the potential reward.

Variable Annuity

Variable annuities involve investment in market assets, such as mutual funds, and resemble IRAs. Unlike IRAs or 401(k)s, you can contribute unlimited amounts every year.

Because you are investing in the markets, your money is exposed to fluctuations. The result is that your funds are at more risk, but you also have the potential for greater reward.

That’s great if you’re starting your career, but it’s dangerous in the last few decades before your retirement – an unexpected crash could wipe out your entire retirement savings.

Variable annuities also have steep fees attached. If you have to withdraw early, you will be hit with stiff “surrender fees.”

Fixed Annuity

Fixed annuities are far simpler instruments. You pay an amount each month during the accumulation phase, which your insurance company will invest in low-risk investments such as corporate bonds. In return, you get a certain amount every month during the distribution phase.

However, the security of such annuities is offset by the comparatively lower returns they offer.

Fixed Index Annuity

Fixed index annuity refers to the investment instrument formerly called an equity indexed bond.

Your money is “invested” in market indexes such as the S&P 500 or Dow Jones Industrial Average. Every time the index’s value increases, this increase is credited to your fixed index annuity.

In this way, you are exposed to market fluctuations, like variable annuities provide, but without the risk that variable annuities carry.

Advantages of a Fixed Index Annuity

The great part is that you don’t lose those gains when the index’s value decreases: they are effectively locked in. Your principal is also protected against loss.

Thus, no matter how badly the markets may be doing, you are at least guaranteed not to lose what you have already gained.

Disadvantages of a Fixed Index Annuity

Bear in mind that a fixed index annuity comes with a couple of downsides.

Firstly, because your funds are invested in very safe instruments with low exposure to risk, you will not see your money grow the same amount that more risky types of annuity would.

Secondly, although a fixed index annuity protects your principal, it does not account for the effects of inflation on this principal.

Consult With a Financial Professional

Investing for your post-work years is a critical component of a comfortable, happy, and healthy retirement. It is also confusing for many people, and choosing the wrong investments can have unforeseen consequences down the road.
Before making investment decisions, consult with a financial professional who can help you select the best ways to prepare for your retirement.

Many people have learned about the power of using the Safe Money approach to reduce volatility. Our Safe Money Guide is in its 20th edition and is available for free.  

It is an Instant Download.  Here is a link to download our guide: 

Safe Money Guide – Annuity.com

About John Stevenson

John Stevenson, a prominent wealth protection educator, has been able to help thousands of people successfully strategize for retirement. With retirees living longer and retiring earlier, having a retirement income that cannot be outlived has been a growing concern for many seniors. His clients include teachers, business owners, executives, doctors, and entrepreneurs, to name a few. Not a single client has ever lost money due to market fluctuations. John is also an expert in structuring Tax-Free Retirement Accounts, which help his clients build wealth safely and enjoy an extremely low tax burden or even zero taxes in retirement. His services focus on assisting people to Retire On Purpose, not just leave it to chance.

View The Best Annuity Rates Available Now

Annuities are a safe and reliable investment. They can transform your savings into a more predictable income. Speak with one of our qualified financial professionals today to find out how an annuity can offer you guaranteed monthly income for life.

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Content in our posted articles is deemed to be accurate but topics, facts and laws can change. It is always a good idea to verify facts before making decisions. Always seek authorized and professional advice regarding financial decisions which includes investing, annuity purchases, tax planning, changes in a financial portfolio and retirement planning.

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