Andrew Corbman: What to Know before Getting a Fixed Index Annuity

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Andrew Corbman guides his readers through the complex nature of fixed index annuities. While FIAs are considered low-risk investment products, not all are created equal. Thus, those interested in getting a fixed index annuity should learn to ask all the right questions to arrive at an informed decision.

Fixed index annuities have been steadily gaining acceptance as an investment product, especially for those planning their retirement. From 2013 to 2014, sales rose more than 20%, and because they are generally considered safe investments, the trend is bound to continue. While the actions of some financial advisors have brought FIAs under scrutiny, Andrew Corbman believes that potential investors can protect themselves by asking a few simple questions. Below are some questions you could ask before deciding whether or not to get a fixed index annuity.

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How much of my investment will be returned? The appeal of a fixed index annuity lies in the fact that the principal enjoys full protection. This means that even if the broad market index, such as the S&P 500, performs badly during the term of the FIA, you will get your initial investment back. Most providers will guarantee 90% of your investment at the very least.

How much do I pay in case I want to cash out early? To protect their investment, though, companies charge a significant amount, known as a surrender charge. If you wish to exit earlier, you’ll have to pay more. Andrew Corbman suggests asking for a surrender charge schedule from your financial advisor and determine from there if the interest earned outweighs the charges.

What is the guaranteed minimum investment return? Because FIAs are rather conservative compared to traditional investment products, such as stocks, you are not likely to get a lot out of it. However, the minimum investment return could prove to be a steady stream of income as you approach retirement. Most FIAs offer a 1% minimum interest rate.

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What are the income rider details? Much of the money that investors earn with FIAs come from income riders. Different investment products offer between $16,000 to $21,500 annually, but as always, Andrew Corbman suggests deciding between prospective higher earnings as the annuity nears the end of its term or steady earnings throughout.

How long will I invest in the FIA? Many FIA products offer low guaranteed interest for the first few years of a multi-year contract. This might be a good idea if you are relatively young or are quite sure that you’ll live long enough to see the FIA mature. However, if you are already nearing retirement and want to enjoy your FIA’s earnings right away, Andrew Corbman suggests getting a short-term FIA with a low but steady interest rate.