The old phrase, “no pain, no gain,” is far from the truth when describing fixed index annuities (FIAs). While this particular category of annuity is unique in that it combines benefits from both fixed annuities—where the insurance company guarantees a minimum rate of interest and a fixed amount of periodic payments—and index annuities–which combines features of securities and insurance products with the insurer crediting individuals with a return based on a stock market index—it also is noteworthy in its combined protections.
According to the U.S. Securities and Exchange Commission website, Investor.gov, people typically buy annuities to help manage their retirement income, and annuities provide three things: periodic payments for a specified amount of time, death benefits and tax-deferred growth. Those who opt for FIAs are no different, but they are looking for protection not found in all types of annuities.
Variable annuities, for instance, allow individuals to direct annuity payments to different investment options such as mutual funds, and the payout varies depending on how much an individual invests the rate of return on the investments and any expenses. Variable annuities typically involve investment risks, and if the individual invests in a variable annuity through a tax-advantaged retirement plan such as a 401(k) or IRA, he or she will not get any additional tax advantages from a variable annuity.