Fixed Indexed Annuities are considered a safe money product because they’re backed by the financial strength of the insurance company guaranteeing safety. This is an insurance product, not a stock market investment, and interest earned is locked in each reset period. Money invested will never be lost, never go down in value, and will earn pre-determined gains every year. Making a fixed indexed annuity a safe, or low-risk, tax-deferred long-term savings option.
Beyond an FIA, there are three additional types of annuities.
- Variable Annuity
- Immediate Annuity
- Deferred Annuity
Variable Annuities are high-risk investments typically mutual funds that are comprised of stocks, bonds, money market instruments (CDs, money market funds and accounts, etc.) or a combination of all three. You can lose what you invest because you carry the risk of performance.
An Immediate Annuity is a lump-sum investment with payments that can begin within a year and guaranteed for a specific time, from 5-years to a lifetime. Payments will end after death unless the annuity included a cash refund, or death benefit. The lump-sum initial payment can be a downside for many.
Deferred Annuities don’t have limits like a Roth IRA or 401k and payout the same way they’re purchased, in a lump sum or monthly payments. Payment dates are set by the investor and taxes are paid when money is taken out.