Do you know these 3 pros of FIAs?
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While they鈥檝e been around for decades, fixed indexed annuities (FIAs) saw of $125.5 billion in 2024, 31% higher than 2023. 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 circumstances, 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鈥檚 within 10 years of retiring, he鈥檚 more concerned when the markets go down and his retirement saving鈥檚 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 interest credits were still linked to a market index, but not directly invested there, so he has an opportunity to benefit from market trends without owning stocks. Plus, his initial principal and any interest credits are locked in and can't be lost if the index declines in the future.
2. Manage market risk
Pam, age 65, wants to know her principal is guaranteed from market loss, even if the market takes a downturn. She鈥檚 within five years of retirement and wants to protect what she鈥檚 saved, knowing she may need to start withdrawals before she benefits from any recovery.
Once she chose a FIA, Pam looked at her index options. She could have chosen to earn interest credits based in part on the performance of a familiar benchmark index, but she was intrigued by what her financial professional told her 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. Pam and her financial professional agreed on a custom index option because of the growth potential.
A FIA also provides some protection because it can offer 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鈥檛 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鈥檚 considering a FIA with an income rider which will provide a guaranteed 鈥渞etirement paycheck鈥� when she鈥檚 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鈥檚 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鈥檛 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 professional? We can help!
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