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.
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.
Allen Young is an experienced writer on such subjects such as real estate investing, mortgages, and personal finance. Young has also written on sports, travel, and parenting. Currently he is the president of Crestwood Capital Group.