As you consider the different tools for preparing for retirement and financially supporting yourself in the future, you might already understand the benefits of things like a 401(k) or IRA. However, when it comes to annuities, chances are you’re more of a novice. Here’s an overview of what you should know about annuities, specifically fixed index annuities. To learn more, reach out to our experts at Top Investment Solutions today.
Before diving into the specifics of a fixed index annuity, it’s important to understand what an annuity is.
Annuities are purchased by people to help manage their income during retirement. An annuity is simply a contract between the annuity holder (you) and an insurance company or financial institution. The contract specifies that the insurance company will pay you out a series of payments, or a lump-sum payment, in exchange for your premium cost/principal investment (also either a lump-sum payment or monthly premiums). There are three main reasons why people purchase annuities:
There are multiple types of annuities, including variable, fixed, and fixed index annuities. In a fixed index annuity, the value of the annuity is based on the performance of the underlying stock market index. However, unlike a variable annuity and unlike index funds, fixed index annuities are well-protected against major losses, including loss of principal. This is because fixed index annuities track the performance of indexes but are not actually invested in them.
There are some benefits and drawbacks of choosing a fixed index annuity over another annuity type.
One of the biggest advantages of a fixed index annuity, as mentioned above, is that you are protected from major losses, including loss of principal. However, in exchange for this protection, you’re also giving up the potential of the large gains that you might see in a variable annuity. In other words, the annuity will limit both your potential losses and gains.
If you’re thinking about purchasing an annuity, it’s important that you understand all of your options. At Top Investment Solutions, we can guide you through the different types of annuities, including fixed index annuities. We can also help you to understand whether an annuity is a smart addition to your existing retirement plan. To learn more and to speak to a professional, call our office today or send us a message at your convenience.
This material is not a recommendation to buy, sell, hold, or roll over any asset, adopt an investment strategy, retain a specific investment manager or use a particular account type. It does not take into account the specific investment objectives, tax and financial condition or particular needs of any specific person. Investors should discuss their specific situation with their financial professional.
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