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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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