Here are five common myths about fixed index annuities (FIAs). Once armed with the facts, you will be ready to make a more confident decision in adding FIAs to your financial plans.
Myth 1: Fixed indexed annuities are not tax efficient.
FIAs may be a valuable solution for those looking to grow their retirement savings because they are a long-term, tax-deferred product - annuities allow retirement savings to grow without being reduced by tax payments – another appealing reason to consider an annuity. In fact, annuity earnings grow on a tax-deferred basis until you begins taking withdrawals or surrenders the annuity.
Over time, you will have the potential to build more retirement savings than you would have been able to if your earnings been taxed as income. Keep in mind that there is no additional tax benefit associated with funding an annuity from a tax-qualified source like a 401(k) plan.
Myth 2: Fixed indexed annuities can’t keep up with inflation.
Income riders frequently offer payout options that are indexed to inflation, which may help annuity holders keep pace with the rising cost of goods and services. However, when you are considering annuities in retirement planning, you should factor in the inflation risk associated with a fixed annuity payout. Like any risk in retirement planning, there are ways to insure, hedge, offset or otherwise lessen the impact of a known risk.
In next blogpost, we will bust the rest 3 annuity myths.