What is a Fixed Index Annuity?
Rarely do you hear much about fixed index annuities in the financial press. This could be due to the fact that only around 6% of all financial professionals even sale these products. I think however these financial products would be much more popular if the general public knew how they actually worked. Basically, fixed index annuities allow someone to participate in a portion of the gain in an index each year without the risk of loss of principal or previous year gains (See link #1 below to learn more about Fixed Annuities).
Recently I came across a study completed by the Wharton School of Business (see link #2 below). In this study they found that not only did the fixed index annuities outperform their risk-adverse counterparts, but also, in some cases, they even outperformed their more risky counterparts. Their study concludes that fixed index annuities were designed for safety of principal with the gains linked to a given index.
I am very grateful to have owned a fixed index annuity inside my IRA since 2006 and can tell you first hand that I have never lost $0.01 or any previous year gains. In these volatile times I think these are the type of solutions most consumers are seeking to protect their hard earned nest egg.
Link #1 to learn more about Fixed Annuities:
http://www.indexannuity.org/ic2002b.htm#reporter
Link #2 to see the Wharton Study:
http://fic.wharton.upenn.edu/fic/Policy%20page/RealWorldReturns.pdf
Essentially a fixed annuity is a wonderful choice to provide you and your family with steady fixed income throughout your retirement. The benefits of tax deferral and the growth of the original investment outweigh the disadvantages of early withdrawal penalties and many decisions and choices that can seem overwhelming upon the initial contract.
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