Busting the Top 5 Myths About Fixed Index Annuities

For many retirees and investors, it’s hard to shake the myths and misperceptions that prevent them from exploring fixed index annuities, or FIAs. “They don’t keep up with inflation,” for example. Or “They come with hidden fees.”

It’s time for a script that separates the myths from the facts. For starters, it makes sense to highlight the benefits. They continue to be a safe growth option for clients seeking to balance risk and reward in their retirement plans. Busting the myths can help:

• Overcome out-of-date views
• Elevate standout features
• Pivot the discussion to retirement income

In your next client meeting, use these insights to guide a thoughtful discussion:

Myth No. 1: Fixed index annuities are not tax efficient.

Fact: FIAs are highly tax efficient. Because FIAs grow tax-deferred, owners accrue interest over time and taxes aren’t due until they begin withdrawing money. Retirees can also minimize their tax liability by planning strategic withdrawals, like when they’re in a lower tax bracket.

Myth No. 2: Fixed index annuities can’t keep up with inflation.

Fact: FIAs can protect against market losses while offering more growth potential, and this can help offset inflation over time. Because they’re tied to a market index, such as the S&P 500^®, they have the potential for growth based on market performance. At the same time, they’re protected from market downturns. The long-term expected return for FIAs is typically higher than other guaranteed accounts, like certificates of deposit.

Myth No. 3: Fixed index annuities are directly tied to the market, which raises fears about volatility.

Fact: FIAs aren’t directly tied to the stock market. Instead, FIAs earn interest based on market performance of an index. Tracking the performance of one or more market indices, gives funds the opportunity to experience market gains. At the same time, they are protected from market downturns. This allows investors to benefit from the gains without worrying about losses.

Myth No. 4: Fixed index annuities are complex and confusing.

Fact: An annuity, including a fixed index annuity, can be explained in simple terms — it’s a financial product that allows you to save now and draw a steady income later. A fixed index annuity is simply one that earns interest based on the market performance of an index.

Myth No. 5: Fixed index annuities contain hidden fees.

Fact: Annuity issuers are required to disclose all fees and costs. Fixed index annuities, like all annuities, are regulated at the state level. Most state insurance commissioners adopt model laws created by the National Association of Insurance Commissioners, or NAIC. The model laws are designed to protect the interests of consumers. One way they do so is by requiring annuity issuers to provide a clear explanation of charges and fees. These amounts are provided in the annuity contract itself.

Download and use this sales concept flyer.