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Fixed Index Annuities – Facts vs. Fluff

Jennifer Calandra

Annuities, by far, are the most misunderstood and in some cases, misused, financial vehicles in the marketplace. Planning for retirement can be an extremely daunting task and when you add in the confusion of what products to use, who to trust, how to invest…some people choose to do nothing.

I want to take a moment to put to rest some concerns as well as provide clarity around the use of Fixed Index Annuities (FIA). Once you become familiar and comfortable with their proper use, reality is, you will see that they offer many advantages and it just might be what you are looking for.

FLUFF: Annuities are too confusing to own and understand

FACT: Actually, a fixed index annuity is very simple when you take the time to learn and work with a financial advisor that takes the time to educate you. If you look at the Webster’s dictionary definition of an annuity it says: “a fixed amount of money that is paid to someone each year; an insurance policy or investment that pays someone a fixed amount of money each year”. Pretty simple explanation, right? You may already be receiving income that by definition is an annuity-your pension, Social Security, etc. Some of you are already receiving the benefits of an annuity. FIA’s are backed by insurance companies, and in return for a lump sum of money used to purchase the annuity, the insurance company is contractually obligated to pay you, at a specific time that you choose, an income stream…for as long as you live. You see, an annuity is the only investment vehicle that will provide lifetime income. Think about it-we insure our homes, our cars, motorcycles, boats, our health and even when we travel. Why wouldn’t we insure our income? Now I will agree that the contract itself can be overwhelming. So ask questions, get explanations and have a good feeling about what you are doing before you sign on the dotted line. The best type of investor is an educated one.

FLUFF: If I buy an annuity, I give up access to my money

FACT: Not true. As we discussed above, the purpose of an annuity is to repay money over a period of time. In addition, generally speaking, free withdrawals are available from your account each year, free of any charges. Keep in mind, that your withdrawals may be subject to state and federal income taxes, and in addition, a 10% penalty from the IRS if you withdraw Qualified money prior to age 59 ½. In addition to the annual free withdrawals, some FIA’s offer waivers for Terminal Illness or Nursing Home Care. If you are confined to a nursing home or hospital for over 90 days or are diagnosed with a terminal illness, you have access to all of your money, and in most cases surrender charges are waived. No one knows what the future holds, so keep in mind the flexibility of the annuity contract. It is important to always understand the entrance and exit strategies of any financial vehicle you utilize.

FLUFF: Annuities are loaded with hidden fees and surrender charges

FACT: You need to understand the in’s and out’s of your annuity. In most standard FIA’s, there are no direct management fees or hidden fees. That being said, there can be fees incurred if adding a particular additional feature to your annuity contract. In some FIA’s, options such as bonuses, optional riders such as guaranteeing income, a specific growth rate, death benefit, healthcare rider,  can require a fee to add these options. Keep in mind, these additional features provide benefit to you, and might be a good selection to add to your FIA. In regard to surrender charges, look at it this way. You are entering into a “marriage” if you will, with the insurance company. Annuity contracts have specified terms, some 7, 10, 12 or 16 years even. This allows the annuity provider to take a long-term approach to make your money work for you. A surrender charge is in place to protect you from yourself.  As people we are pre-wired with two very strong emotions, greed and fear. In some cases, we need to help our clients protect themselves FROM themselves and keep them from making knee-jerk reactions to the market, or to life in general. The annuity companies use surrender charges in a similar fashion.

The bottom line, make sure you are working with a financial professional who helps you discover if the use of an annuity is right for you and if you can handle what is required to see the true benefits of adding this in your overall retirement plan. A Fixed Index Annuity is not a one-size-fits-all product. Don’t let the misconceptions about annuities prevent you from seeing if it just might be what you are looking for.

To learn more from this educator, click here (Jennifer Calandra).

About the Author:

Jennifer Calandra, Cofounder and COO of Calandra Financial Group, LLC, is a Registered Financial Consultant (RFC) and is a member of the International Association of Registered Financial Consultants. Along with her husband and business partner, Phil, she works hand in hand with clients to educate them on key issues important to their specific and individual needs.

As part of her dedication to the success of her clients, Jennifer was asked to co-author the Best-Selling Book Dare to Succeed, alongside Jack Canfield (co-creator of Chicken Soup for the Soul) and other leading experts from around the country. In this book about conquering the competition and securing your business as an entrepreneur, Jennifer describes what secret strategies she used to take her business from small financial firm to the third consecutive Best of Atlanta Award-winning firm it is today.

If you would like to meet with Jennifer and learn more about her firm’s unique “Results in Advance Planning Process”, please contact her at or through her firm’s website


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