With the economy and markets in flux, I always try to break down the retirement planning options for clients as simply as possible. One of the easiest and most powerful retirement solutions you should consider, so you don’t end up living in a van down by the river, is a fixed index annuity, or an FIA.
Here are the top five benefits an FIA can provide:
1. Interest Credited is Not Taxable: Because the interest credited within an annuity does not have to be reported to the IRS, it does not get taxed every year. In addition, because its only subject to tax when withdrawn, the fact that you’re receiving credit does not have any negative impact upon your Social Security benefits.
2. No Annual Management Fee: This helps to ensure that your financial interests take precedence above a financial planner or manager. Any commissions paid to a financial professional are paid once up front and from the insurance company. Most reputable companies will not deduct the commission from the annuity. Instead, the company will directly compensate the agent from their funds or profits. This is an incredible benefit for you! If you were to deposit $100,000 into an FIA, you would still have all of your investment, even after any commissions were paid. In addition, some companies provide you with a deposit bonus ranging from 5-10%. If you deposit $100,000, you immediately have made $5,000-10,000. These days, how long would it take you to make that kind of money in a bank?
3. Ensures Your Savings Will be Protected Against Loss: At its very heart, an annuity is an insurance policy for your life savings. Its primary purpose is to ensure your savings against loss and you never outlive your money. Think of it this way: As a homeowner, you insure your home against fire and any unforeseen, destructive forces. Your homeowners insurance protects your home against loss. Many people donʼt realize that they can do the same thing with their life savings by utilizing the benefits provided by an FIA. Essentially, you’ll get all of the gain with none of the pain.
4. Withdraw Your Money Without Penalty: A large portion of your assets is always immediately accessible. In addition, as a general rule, 12 months after the initial deposit, youʼre allowed to withdraw a portion of your money without penalty. The exact percentage varies from company to company, but most often itʼs 10%. In some cases, you may be allowed to exceed the penalty-free amount to cover expenses such as medical emergencies and caregiver fees.
5. Potential for Guaranteed Income for Life: This is my favorite benefit, and should be yours as well. Remember, the basic goal of an FIA is to be a tool that will accumulate wealth over time. Some people may refer to it as a nest egg or savings account. Call it what you will, but over time, your annuity has the potential to grow into a huge lump sum of money that can be used however you see fit. Some people will choose to leave the entire pool of money intact and save it for rainy day expenses. Others may choose to take advantage of its ability to provide a guaranteed income stream for life. That’s right, for life! This is one of the best ways to ensure that you can never outlive your money, not the other way around. Youʼre in full control of how to utilize the benefits of your FIA.
So, what's your choice for retirement? You can either take action to protect your investment and enjoy a comfortable, secure retirement, or you can do nothing and risk living out your days in a never-ending Saturday Night Live sketch reminiscent of Chris Farley's "living in a van down the river" skit. The choice is up to you!
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