What Would Be Considered A Disadvantage Of Owning A Fixed Annuity?
- 37376 POINTSview profileDavid G. Pipes, CLU®, RICP®Business Development Officer, T.D. McNeil Insurance Services, Fresno, CaliforniaThe major disadvantages of a fixed annuity are: the accumulation is set at a fixed interest rate and does not always keep pace with changes in the market. The owner of the annuity doesn’t have any control over the investments that underlie the annuity. When the annuity is converted to lifetime income all control over the value of the annuity is released. These can be seen as disadvantages or advantages depending upon the need of the consumer.Answered on September 16, 2014flag this answer
- 21750 POINTSview profileJim WinklerCEO/Owner, Winkler Financial Group, Houston, TexasThat is a great question! There are two things that could be seen as disadvantages to having a fixed rate annuity. One is inherent in all annuities, and that is the fact that the money is untouchable for several years, without paying penalties to withdraw it. If you change your mind, or feel that it wasn't a good investment, it can be difficult to change without taking a hit financially. Annuities are a bad investment vehicle if you have liquidity issues. The second is that if your're not receiving a rate that will outpace inflation and cover fees, you can actually lose money. If the guaranteed rate say, is 2%, but the fees are 1% and inflation is 1.5%, you are actually losing money. The same could be said if the money invested in the annuity could have brought a higher return invested elsewhere. It's important to really have a good advisor when looking at annuities, especially fixed ones, to ensure you get the best return possible. Thank you for asking!Answered on September 17, 2014flag this answer
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