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Should I Invest in a Fixed-Index Annuity?

Question: Is a fixed-index annuity a good or bad investment for someone nearing retirement?

– Carol Ring, Santa Clarita, Calif.

Answer: It sounds like a good deal—a guaranteed minimum return no matter what the stock market does. But experts at the Financial Industry Regulatory Authority warn that fixed-index annuities (also called equity-indexed annuities) can be rife with fees, penalties and complex rules that while limiting an investor’s exposure to the downside of the market, can limit upside potential as well. What’s more, locking money into any sort of fixed product with today’s low interest rates could backfire, if rates or inflation rise, says Timothy Sabol, an adviser with Ameriprise Financial in Conshohocken, Pa. One way to use an annuity, Sabol suggests, is to calculate your projected fixed monthly retirement expenses and put a portion of your portfolio into a fixed annuity, just to pay for those costs. That way, the essentials are covered.


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    • I really appreciate your post and you explain each and every point very well.Thanks for sharing this information.And I’ll love to read your next post too.

    • It’s amazing that FINRA warns against products they don’t have oversight on. Also, I believe the excessive fee conversation usually is held among variable annuity and mutual fund discussions. Obviously, if the insurance company is going to guarantee NO loss, they have to make their money by limiting you upside potential. Plus, there are several fixed indexed annuities out that won’t keep you locked into a low rate environment. The only thing I agree with in this article, is a retiree does need to be educated about these products, just like all others. There is always positive and negative features to an investment; it’s what you are willing to trade off for your desired gain.

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