Fixed Annuities – Is My Fixed Annuity Really Safe?
Fixed annuities are typically thought of for their safety. After all, you can’t lose money due to stock market declines when you are in them, right? Yes, but that does not necessarily average they are safe.
already though fixed annuities are safe in terms of not losing money in the market perspective, one thing you must consider is that there are other aspects to them that may make them unsafe. The first thing is their without of liquidity. Sure there is a tax deferral part, however, one thing to consider is that if you NEED the money, you might have to pay some penalties to get to it. This is often referred to as the surrender charges. Often times, these surrender charges can be quite steep on your annuities. This makes them risky from a liquidity stand point.
Another factor to consider is the rating of the insurance company. Now, if you ask me, ratings aren’t necessarily the ‘end all’ when it comes to safety. In a non apple-to-apple comparison, Merrill Lynch had Enron rated as a buy as the stock slid from its peak to single digits. Ratings aren’t always to be trusted and this holds true for insurance companies in addition. The safety of an insurance company determines the safety of your annuity in addition. It is important to do your due diligence and do it well when choosing an insurance company.
There are also many other factors to consider when it comes to choosing your fixed annuities that will determine their safety.