Fixed Indexed Annuity Pros and Cons

Fixed Indexed Annuities (FIAs) are a popular choice for individuals seeking a balance between growth potential and principal protection. Like any financial product, FIAs have advantages and disadvantages that should be carefully considered before making a decision. Here’s an overview of the pros and cons of FIAs to help you determine if they’re right for you.

The Pros of Fixed Indexed Annuities

1. Principal Protection:
   • One of the most attractive features of an FIA is the guarantee that your initial principal is protected. Even if the market index linked to your annuity performs poorly, you will not lose your initial investment.
2. Growth Potential:
   • FIAs allow you to earn interest based on the performance of a market index, such as the S&P 500. While gains are often capped, they still provide an opportunity to participate in market growth without the risk of direct market exposure.
3. Tax-Deferred Growth:
   • Earnings within an FIA grow tax-deferred based on the current tax code, meaning you won’t pay taxes until you make withdrawals. This feature can accelerate the growth of your savings over time.
4. Customizable Options:
   • FIAs offer various crediting strategies, such as point-to-point, participation rates, and cap rates. You can choose options that align with your financial goals and risk tolerance.
5. Guaranteed Lifetime Income (Optional):
   • Many FIAs include optional riders that provide a guaranteed income stream for life. This feature can help retirees ensure they won’t outlive their savings.
6. Diversification:
   • Including a FIA in your retirement portfolio adds a layer of stability and reduces overall risk, especially during periods of market volatility.
7. Flexible Withdrawal Options:
   • Most FIAs allow penalty-free withdrawals up to a certain percentage annually, offering some liquidity for unexpected expenses.

The Cons of Fixed Indexed Annuities

1. Limits to Upside Potential:
   • While FIAs provide growth potential, the gains are often capped through participation rates, cap rates, or spreads. This means you may not capture the full returns of a rising market.
2. Complexity:
   • The variety of crediting strategies and terms can make FIAs difficult to understand for some investors. Working with a financial professional is essential to fully grasp how these products work.
3. Surrender Charges:
   • FIAs typically have surrender periods, during which withdrawing more than the allowed penalty-free amount can result in significant surrender charges. These periods can range from several years to over a decade.
4. Taxation on Withdrawals:
   • When you withdraw funds, the interest portion is subject to ordinary income tax, which could result in a higher tax liability depending on your tax bracket and are generally higher compared to capital gains rates.
5. Potential Fees for Optional Riders:
   • While optional riders, such as lifetime income guarantees, can be valuable, they often come with additional fees that may reduce overall returns.

Who Should Consider a FIA?

FIAs are best suited for individuals who:

• Value principal protection.
• Want to grow their savings with some exposure to market performance.
• Seek tax-deferred growth opportunities.
• Need a diversified, stable addition to their investment portfolio.

Making the Right Choice

Fixed Indexed Annuities can be a valuable tool for retirement planning, but they’re not suitable for everyone. It’s crucial to weigh the pros and cons carefully and consult a financial professional who can help you determine if an FIA aligns with your overall financial strategy.

Discover the Oceanview Difference

• Financial Strength You Can Trust: Rated “A” (Excellent) by A.M. Best, showcasing our solid financial foundation, providing you with confidence regarding Oceanview’s commitment to meeting obligations.
• Simple, Transparent Retirement Solutions: Straightforward annuity products designed to help you meet your retirement objectives.
• Competitive Rates and Flexibility: Benefit from competitive rates and a variety of durations and crediting strategies.
• Client-Centric Approach: Features such as free withdrawals, nursing home and terminal illness waivers, and full liquidity for beneficiaries upon the annuitant’s death demonstrate our commitment to your financial security and peace of mind.

Disclaimers

Oceanview’s Single Premium Fixed Indexed Annuity Contract [ICC19 OLA FIA], product riders and state variations. Product features, limitations and availability may vary. Products not available in all states.

Annuities issued by Oceanview Life and Annuity Company, 1819 Wazee Street, 2nd Floor, Denver, CO 80202. In California, doing business as Oceanview Life and Annuity Insurance Company www.oceanviewlife.com.

HARBOURVIEW ANNUITIES ARE PRODUCTS OF THE INSURANCE INDUSTRY AND NOT GUARANTEED BY ANY BANK NOR INSURED BY THE FDIC OR NCUA/NCUSIF OR ANY OTHER FEDERAL GOVERNMENTAL AGENCY. MAY LOSE VALUE. NO BANK/CREDIT UNION GUARANTEE. NOT A DEPOSIT. MAY ONLY BE OFFERED BY A LICENSED INSURANCE AGENT. GUARANTEES ARE SUBJECT TO THE CLAIM PAYING ABILITY OF THE ISSUING INSURANCE COMPANY.

Annuities are generally designed as long-term retirement solutions and have certain limitations. They are generally not intended to replace emergency funds, serve as income for day-to-day expenses, or support short-term savings goals.  Please review the contract for full details.  

A.M. Best Rating as of December 11, 2024, is subject to change. A (Excellent) rating is third highest of fifteen possible rating classes for financial strength. The outlook assigned to these Credit Ratings is stable.

This material is a general description intended for general public, educational use. Oceanview Life and Annuity Company is not providing investment advice for any individual or in any individual situation, and therefore nothing in this correspondence should be read as such. 

Withdrawals in excess of any Free Partial Withdrawal amounts are subject to a Surrender Charge and Market Value Adjustment (MVA). The MVA may have the effect of increasing or decreasing the Surrender Value of the withdrawal depending on the market interest rate changes.The IRS may impose a penalty for withdrawals prior to age 59 ½.