Annuity Guys®

Annuity Rates, Features & Ratings: America's trusted annuity resource. Compare best options for hybrid, index, fixed, variable & immediate annuity quotes.


Helping You Create Great Results Your Retirement Deserves!



(217)753-1515
  • Home
  • About Us
    • About Us
    • Contact Us
    • Site Terms & Disclosure
    • Privacy Policy
  • FAQs
    • Most Frequently Asked Annuity Questions
  • All Annuity Guys Videos
  • Annuity Types
    • Best Annuity Reviews
    • Market Free™ Annuities
    • Choosing an Annuity
    • Deferred Annuities
    • Hybrid Annuity Choices
      • Hybrid Annuity Pros&Cons
      • Hybrid Income Riders
      • Hybrid Annuity Guarantees & Strategies
    • Fixed Annuity Choices
      • Fixed Annuity Performance
      • Better Fixed Annuities
      • Fixed Deferred Annuities
      • Fixed Rate Annuities
      • Fixed Annuity Alternatives
      • Fixed Annuity Pros & Cons
      • Fixed Annuity Negatives
    • Index Annuity Choices
      • Fixed Index Annuity Features
      • Fixed Index Annuity Performance
      • Better Fixed Index Annuities
      • Fixed Index Annuity Alternatives
      • Fixed Index Annuity Pros & Cons
      • Fixed Index Annuity History
      • Fixed Index Annuity Negatives
    • Immediate Annuities
      • Immediate Variable Annuity
      • Immediate Fixed Annuities
    • Variable Annuities
      • Variable Annuity Features
      • Better Variable Annuities
      • Variable Annuities Disadvantages
      • Variable Annuity Alternatives
      • Variable Annuity Negatives
      • Variable Annuity Performance
    • Pre-Issued Annuities™
      • Hybrid Annuities versus Pre-Issued Annuities ™
    • Annuity Glossary
  • Articles
    • How Do MarketFree™ Annuities Work?
    • Are Annuities Safe?
    • Living Benefits
    • FIA Performance
    • Beware of FIAs?
    • Annuities & Retirement
    • Annuities & Estate Tax
    • Rollovers & Annuities
    • Annuities & Tax
    • Charity & Annuities
    • The Lost Decade
    • Best Annuity Videos
    • Social Security Benefits
  • Calculators
    • Retirement Planning Calculator — Basic
    • Retirement Shortfall Calculator — Basic
    • Immediate Annuity Calculator & Quotes
    • Fixed Index Annuity Calculator & Fixed Annuity Calculator
    • Variable Annuity Calculator & Hybrid Annuity Calculator
  • Blog
    • Annuity Guys® Weekly Annuity Video Blogs
  • Get Annuity Guys Help
    • Request Annuity Guys’ Planning Help Today
You are here: Home / Annuity Types / Fixed Index Annuities / Fixed Index Annuity Negatives

Fixed Index Annuity Negatives

What are the negatives of Fixed Index Annuities?

All investment products and strategies have certain pitfalls. Unfortunately Fixed Index annuities have been over stated and improperly recommended creating at times an unsuitable financial planning situation. Financial products are a lot like tools used properly they are fine when used improperly they create irreversible damage. The tools are not at fault but the person using them can be very inept.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

Review 3-Best Retirement Annuities for Your
GROWTH, INCOME & SAFETY!

1) Unqualified insurance salesman. Far too often, the people who offer EIAs/FIAs to retirees are inadequately licensed and trained, and sometimes they don’t accurately explain the investment principles and retirement concerns involved.

I should also point out that there are some very competent investment advisers who started out in the insurance industry. They have progressed from that starting point and acquired the necessary education and licensing to understand and offer the current sophisticated investment strategies. Check credentials and experience also do background checks it always costs less in the end to work with a true professional. State laws require annuities to be acquired through a licensed insurance agent or financial planner/educator

2) Over zealous insurance salesmen overstating performance. Fixed index annuities are like any other investment used properly they work great when used in unsuitable ways they can be a disaster.

Unfortunately they are misrepresented often as giving full market returns with . The to principal is true and at times they do equal or beat the market. Unfortunately that is not always true. In a strong economy with stocks doing well it is expected that the Fixed Index annuity will fall several percentage points behind the market return however a FIA with a 5% to 8% interest return and to principal for many retirement plans would be considered a win-win situation.

FIAs are annuity contracts between you and a life insurance company. They are simply a fixed annuity that is linked to the performance of a stock market index, commonly the S&P 500, Dow Industrials or the NASDAQ. An FIA has a **guaranteed minimum rate of return (**guaranteed by the insurance company and not the FDIC), and it gives you the ability to capture a portion of stock market gains with no market losses. That’s the upside. Overall, FIAs are not designed to beat the stock market even though many have from 1999 through 2010. They are basically designed to outperform the fixed markets such as CDs, Money Markets and Bonds.

One downside is that you usually have to hold onto a fixed index annuity for several years to enjoy its full advantage. The term to maturity is typically 8-12 years, and sometimes longer. That money is allocated to that annuity during that time. You can’t just go and pull your money out like you can with a money market or savings account. If you need to pull your money out of an FIA soon after you sign the contract.

1) You may have to pay a surrender charge. It varies from annuity to annuity, but it can be in the vicinity of 9-12% of your principal.

2) Most FIAs allow ten percent annual withdrawals with no penalty

3) You may lose some or all of the index-linked interest that the EIA has already accumulated on the portion you withdraw.

4) You will owe taxes only on the increase in value of the annuity. (Withdrawals by annuity holders younger than age 59.5 are subject to a 10% penalty levied by the IRS.)

It is important to plan properly so the Fixed Index Annuity can be a long term solution for your retirement needs. You may lose money if you need to get out of the FIA soon after you open it this should rarely ever happen with proper planning. However if you keep your money liquid and lose the opportunity to make 6% and only make 4% the extra 2% per year for ten years will actually cost you a lost opportunity penalty of 31% by default. That extra 2% compounded will increase your asset value by 31% so if you plan properly the Fixed Index annuity has the potential to make a significant difference over fixed income investments, cash equivalents and at times it actually does have the potential to exceed stock market returns!

Get Annuity Guys® Referral Help

Fixed Index Annuity Pitfalls:

  • Being sold an inappropriate or unsuitable fixed annuity
  • 10% IRS penalty on withdrawals prior to 59 1/2 years of age
  • Early withdrawal penalties or surrender charges for large withdrawals prior to maturity or when withdrawing in excess of the 10% annual surrender free portion
  • Ordinary income tax owed on earnings during the withdrawal or income payout stage
  • LIFO: Last in first out tax requirement so earnings are taxed first, unless annuitization takes place, which then uses a tax exclusion ratio
  • Fixed index annuities are not FDIC insured
  • Fixed index annuities do not capture the full upside of the stock market
  • Caps, participation, spreads and declared fixed interest rates are all subject to change on an annual basis
  • It is possible during a down year or years to have zero interest crediting

Fixed Index Annuity Benefits

  • Safety: Backed by highly rated state regulated insurers
  • Tax Deferral: Tax-deferred growth
  • Higher Return: Better interest rates typically than CDs
  • Life Insurance: Death payout **guarantee options
  • Liquidity: Flexible withdrawal privileges
  • Unlimited Contributions, unlike IRAs and 401(k)s
  • Inheritance: Pass money directly to heirs by passing probate
  • Lifetime Option: Income you can’t outlive (Annuitization or a Living Benefit Rider)

Fixed Annuity with Indexing Options

[FIA, Fixed Index Annuity]

  • Lump-sum or periodic contributions
  • Invested in mostly high quality bonds
  • Annual interest crediting risk. Insurance company **guarantees principal.
  • Higher rate potential based on index performance (such as S&P 500, Dow Jones, NASDAQ, etc.)
  • Moderate growth
  • 4% to 8% interest crediting potential varies with index performance
  • 3- to 14-year term
  • Sophisticated, greater potential
  • Guaranteed retirement income options
  • Annual fees, minimal to none

Summary of Pitfalls for Fixed Index Annuities

Investors that need their money prior to retirement may prefer a CD, money market or securities investment to avoid the potential 10% IRS tax penalty imposed for taking money out of an annuity prior to the age of 59 1/2. For individuals at or near retirement, fixed annuities may be a better choice. If you’re looking to have a larger retirement nest egg, fixed annuities may help you meet that goal better than securities, CDs or a money market account.

Find out how to pick the right annuity...

Question: What is the difference between an insurance agent and a financial planner with a fiduciary responsibility?

Answer: As long as the insurance agent does not lie about the product or strategy, he or she can recommend it and receive their commission. They are allowed by law to withhold information about other products and strategies that may be more beneficial for the client. Consider using a fiduciary such as a Registered Investment Advisor. They are legally required to look out for your highest good regarding what they know would benefit you the most.

462
SHARES
ShareTweetGoogleLinkedinPinterestSkypeStumbleuponTumblrDeliciousDiggRedditMail

 

Empowering Annuity Reference Book

 
DOWN-LOAD NOW - FREE!
  • Annuity Guys Reference Book - 250 pages of Annuity Facts

  • "The New Retirement"
    Annuity Reference Book 
    Free Instant Download
  • Confidential - Easy Opt Out
  • This field is for validation purposes and should be left unchanged.

 

  • Are Annuity **Guarantees on Their Way Down?

    Are Annuity **Guarantees on Their Way Down?

    “It was the best of times, it was the worst of times.” Dickens often quoted opening to the Tale of …Read More »
  • What do index annuities, mutual funds and ETFs have in common?

    What do index annuities, mutual funds and ETFs have in common?

    Fixed index annuities, mutual funds^, and exchange traded funds (ETFs) could not possibly have very many things in common or …Read More »
  • Seven Ways to Use Annuities for Estate Planning!

    Seven Ways to Use Annuities for Estate Planning!

    Annuities are not commonly thought of as financial tools that are utilized within an Estate Plan. You may be surprised to know that there are, in …Read More »

Revealing Fun Video: Fiduciary Advisors Vs. Annuity Salesmen
MUST KNOW FACTS 90% of
ANNUITY ADVISORS AVOID TELLING!
  • *FIDUCIARY RETIREMENT REVIEWS
    Second Opinions Improve Retirements
     
    "For Your Retirement's Success"
     Choose a *Fiduciary Advisor who gives you Full Disclosure of Cost & Selection.
     
    Material Fact 1:
      About 90% of advisors ARE NOT REQUIRED by law to do what is best for their clients!
     
    Material Fact 2:
     Fiduciary Advisors ARE REQUIRED by law to do what's best for their clients! 
     
      Hence, clients of a fiduciary can know that their advisor chose the highest legal standard required by law to work strictly for their highest good.
     
     We estimate Fiduciaries are less than 10% of total U.S. financial service providers. Fiduciaries are held to the highest client legal standard of financial planning and investment advice.
     
     The other 90% are sales oriented advisors, brokers, bank reps, registered reps. & insurance agents, selling products on a much lower suitability legal standard, not necessarily what's best for their client!
     
       Fiduciaries also must disclose conflicts of interest that could potentially bias their advice, such as; selling products that pay them higher commissions having higher fees or costs, and their lack of investment product access limiting their client's opportunities, to name a few.
     
    Choosing your advisor can have
    "The Largest Single Impact on
    Your Retirement's Success or Failure"


  • Choosing a Retirement Advisor or Annuity Advisor You Trust

    Choosing a Retirement Advisor or Annuity Advisor You Trust

    Let me start with this basic truth as a Retirement Advisor & Annuity Advisor – THE ANNUITY GUYS ARE GUILTY …Read More »
  • Tax Saving Income Tips

    Tax Saving Income Tips

    As we approach an almost insurmountable debt load likely increases in tax is may be inevitable, we thought it may …Read More »
  • Is it Unfair to Compare Annuities to Investments

    Is it Unfair to Compare Annuities to Investments

    Is comparing annuities to investment choices a mistake? A recent Market Watch article stated that was just one of the …Read More »
  • How Much Money is Enough to Secure Your Retirement?

    How Much Money is Enough to Secure Your Retirement?

    It’s important to differentiate what you need for retirement security versus what you would desire if all your investments go …Read More »
  • Are Annuities the Best Answer to High Retirement Costs?

    Are Annuities the Best Answer to High Retirement Costs?

    The closer you are to retiring, the easier it is predicting how much income you will need in retirement to be comfortable and enjoy the …Read More »
  • Can Annuities Eliminate or Reduce Retirement Failure?

    Can Annuities Eliminate or Reduce Retirement Failure?

    The biggest challenge to a successful retirement is living too long and running out of money – regardless of how …Read More »
  • Are Annuities a Good Choice in a Low Interest Rate Environment?

    Are Annuities a Good Choice in a Low Interest Rate Environment?

    One of the questions we have heard asked quite a bit lately, “Is it the right time to buy an …Read More »
  • Give Money to an Internet Annuity Advisor!  Are You Crazy?

    Give Money to an Internet Annuity Advisor! Are You Crazy?

    We don’t work with crazy people (okay, maybe a couple, LOL), but we do work with a lot of sincere folks who …Read More »

View Our Newest Videos! Subscribe Now
  • Annuity Guys Videos - Annuity Answers
  • New Annuity Guys Videos
    Our Entertaining & Informative
     Saturday Morning Video Blog
  • Timely Retirement & Annuity Issues - Easy Opt Out
  • This field is for validation purposes and should be left unchanged.


  • Annuity Fees – The Nasty Truth

    Annuity Fees – The Nasty Truth

    The conventional press has maligned annuities for years due to high fees and surrender charges, as well they should… when …Read More »
  • Five Top Annuity Safety Risks to Avoid

    Five Top Annuity Safety Risks to Avoid

    Annuities are safe, secure, and without risk…. hmm, well not exactly. As Annuity Guys® we expound quite a bit on the safety …Read More »
  • Annuities Make Life Better for Retirees – Study Reports

    Annuities Make Life Better for Retirees – Study Reports

    Would you rather be happy and optimistic in retirement or worried about spending too much? We know it sounds like …Read More »
  • Annuity Surrender Charges<br>Top Ten Questions & Answers

    Annuity Surrender Charges<br>Top Ten Questions & Answers

    Since David Lettermen retired several years ago, we decided it’s time to honor his place in history, with an annuity …Read More »
  • Are Hybrid Annuities too Complicated?

    Are Hybrid Annuities too Complicated?

    In our conversations with people considering annuities we often hear them repeat a phrase they have read or heard from …Read More »
  • Turning Your 401k into Retirement Income

    Turning Your 401k into Retirement Income

    “If you fail to plan, you are planning to fail!” While Benjamin Franklin was probably not referring to what he …Read More »
  • Study Finds Near Retirees Get Crushed! Can Annuities Help?

    Study Finds Near Retirees Get Crushed! Can Annuities Help?

    A recent headline from the Yahoo Daily Ticker caught our attention – American Incomes Are Falling And Near-Retirees Are Getting …Read More »
  • Low Interest Rates Hurt Seniors

    Low Interest Rates Hurt Seniors

    The Federal Reserve Board has not formally relaxed its intention to keep interest rates low through the end of 2014. …Read More »
Get Newly Released Annuity Guys® Videos on Saturday Mornings
  • Annuity Guys Videos - Annuity Answers
  • New Annuity Guys Videos
    Our Entertaining & Informative
     Saturday Morning Video Blog
  • Timely Retirement & Annuity Issues - Easy Opt Out
  • This field is for validation purposes and should be left unchanged.


  • A Lump Sum Buyout or Keep Your Pension –  Which is Best?

    A Lump Sum Buyout or Keep Your Pension – Which is Best?

    It is a statistical fact that “Retirees love their pensions”. Studies consistently show that pensions are favored over qualified retirement savings plans …Read More »
  • Does Your State Have Good Annuities?

    Does Your State Have Good Annuities?

    There’s no place like home… but when it comes to annuities, your Home State may not be the best place for …Read More »
  • How Much Income Can You Withdraw Safely in Retirement?

    How Much Income Can You Withdraw Safely in Retirement?

    A Reuter’s article hit our desk recently. It’s based on a “safe withdrawal rate” during retirement (safe being relative since we’re …Read More »
  • Are Annuities a Better Answer for The Impending Correction?

    Are Annuities a Better Answer for The Impending Correction?

    Sir Isaac Newton said it best, “What goes up must come down.” Even this booming V shaped recovery is no …Read More »
  • Do I need an annuity with or without a pension?

    Do I need an annuity with or without a pension?

    If you are asking this question rest assured you are in good company. Today’s retirement landscape is the result of …Read More »
  • An Annuity for Valentine’s Day?

    An Annuity for Valentine’s Day?

    There are plenty of jokes about giving a gift that keeps on giving; but seriously, an annuity is a gift …Read More »
  • Annuity Surrender Charges<br>Top Ten Questions & Answers

    Annuity Surrender Charges<br>Top Ten Questions & Answers

    Since David Lettermen retired several years ago, we decided it’s time to honor his place in history, with an annuity …Read More »
  • Annuity Income & Growth to Maintain Principal

    Annuity Income & Growth to Maintain Principal

    Do you remember the first time you heard about annuities? It might have been in a nice restaurant hearing a presentation …Read More »
  • Reduce Your Concern of Outliving Retirement Dollars!

    Reduce Your Concern of Outliving Retirement Dollars!

    Have you ever made a trip to the grocery store where you picked up a few items, walked up to …Read More »
  • Millions of Pensions Dumped – Can Annuities Fill the Gap?

    Millions of Pensions Dumped – Can Annuities Fill the Gap?

    Every time you turn on the news it seems we are bombarded with information on pension reform or the scaling back …Read More »

 

Empowering Annuity Reference Book

 
Start Reading Now - Instant Download
  • Annuity Guys Reference Book - 250 pages of Annuity Facts

  • "The New Retirement"
    Annuity Reference Book 
    Free Instant Download
  • Confidential - Easy Opt Out
  • This field is for validation purposes and should be left unchanged.

 
Comprehensive Site Terms and Disclosure | Privacy Policy | Copyright © 2023 Annuity Guys®


  ** Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. Annuities are not FDIC insured and it is possible to lose money.
Annuities are insurance products that require a premium to be paid for purchase.
Annuities do not accept or receive deposits and are not to be confused with bank issued financial instruments.
During all video segments, Dick and Eric are referring to Fixed Annuities unless otherwise specified.


  *Retirement Planning and annuity purchase assistance may be provided by Eric Judy or by referral to a recommended, experienced, Fiduciary Investment Advisor in helping Annuity Guys website visitors. Dick Van Dyke semi-retired from his Investment Advisory Practice in 2012 and now focuses on this educational Annuity Guys Website. He still maintains his insurance license in good standing and assists his current clients.
Annuity Guys' vetted and recommended Fiduciary Financial Planners are required to be properly licensed in assisting clients with their annuity and retirement planning needs. (Due diligence as a client is still always necessary when working with any advisor to check their current standing.)



  # Investors should consider the investment objectives, risks, charges and expenses of a variable annuity and its underlying investment options. The current prospectus and underlying prospectuses, which are contained in the same document, provide this and other important information. Please contact an Investment Professional or the issuing Company to obtain the prospectuses. Please read the prospectuses carefully before investing or sending money.


  ^ Investors should consider investment objectives, risk, charges, and expenses carefully before investing. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.


  ^ Eric Judy offers advisory services through Client One Securities, LLC an Investment Advisor. Annuity Guys Ltd. and Client One Securities, LLC are not affiliated.


462 SHARES