Fixed annuities are a popular investment option for many people's retirement planning, since they are low risk and provide a steady income, two traits that many people want from their investment plans. However, there are drawbacks that may make fixed annuities a less than ideal investment option for some people.
Principal Protection Benefit
One major benefit a fixed annuity offers is principal protection. In spite of stock market fluctuations, you are guaranteed that your initial investment will be returned to you.
Lifetime Income Benefit
A fixed annuity also gives you income for the remainder of your life, an important benefit for many retirees.
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Inflation Protection Benefit
Not only is income from a fixed annuity intended to last a person's lifetime, it is also designed to keep up with the rate of inflation.
While principal is guaranteed for a fixed annuity, the investment returns may be lower than other investments.
Fixed Annuity Fees
Some critics of fixed annuities argue that the fees charged to maintain a fixed annuity account are excessive. High annual management fees also detract from the investment returns.
Limited Investment Options
A drawback of fixed annuities is that investment options are more limited than other investment plans, causing returns to be lower than in other retirement plans.
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