Don Dirren gets to the heart of the fixed index annuity so investors can make sound decisions based on the facts.
Smart investors try to diversify their portfolios for two primary reasons. The first helps ensure that their earnings potential stays relatively consistent. The second has more to do with where they are in their lifespan and their comfort level with risk. Over the past few years, the fixed index annuity has gotten more attention — but why? Don Dirren breaks it down here.
What is a Fixed Index Annuity?
Like a traditional fixed annuity, a fixed index annuity guarantees that the investor will have a specific rate of return. This type of annuity — which might also be referred to as an EIA, FIA or equity indexed annuity — also provides some protection of the principal.
A fixed index annuity, according to Don Dirren — who has been a licensed financial advisor for more than 30 years — provides investors with the opportunity to both increase the value of their principal without being concerns with the potential volatility of the stock market. While those who hold a fixed index annuity won’t get the incredible gains that are sometimes a part of stock market investing, there is also the advantage of having an account that won’t lose its value because of the way the stock market is performing, Don Dirren points out.
Fixed Index Annuities: The Good
Don Dirren notes that the above points about the protection offered by holding a fixed index annuity aren’t the only benefits that investors can look forward to. Investors who have already maximized their contributions to their qualified retirement accounts — pensions, 401k and IRAs, for example — can grow their nest egg by contributing to an annuity that defers taxes. In addition, there is no limit to the contributions that can be made.
The advantage of compounded earnings is a point that Don Dirren stresses to his clients. Fixed index annuities are tax-deferred. Income taxes on earnings are only paid once they are withdrawn from the account. This allows investors to enjoy earnings as they compound.
Fixed Index Annuities: The Bad
Of course, Don Dirren notes, fixed index annuities are not the perfect investment vehicle for everyone. This type of annuity is charged a 10 percent penalty by the IRS for premature withdrawals. Because any withdrawals that are made prior to the age of 59.5 are considered to be premature, this type of investment might not be the best choice for younger investors.
Fixed Index Annuities: The Ugly
Holding fixed index annuities also means that the investor is subjected to fees, according to Don Dirren.
For more information about fixed index annuities, contact Don Dirren.