Let's just get it out in the open. Annuities have a reputation for being the bad boys of the investment world. And, not in a good, Marlon Brando kind of way. For many, the word "annuity" conjures up visions of evil insurance agents lurking around every corner ready to pounce on little old ladies and their pension funds.

It's really a shame that annuities have such a bad wrap because not all annuities are created equal. And, given the recent market volatility that has done a number on many people's retirement savings, fixed index annuities (FIA) deserve a good hard look.

Many of today's Fixed Index Annuities--not to be confused with old school fixed annuities or variable annuities--offer 100 of interest earned minus any withdrawals, surrender charges, unpaid loans you have taken against your principal, and charges for optional riders you may have selected.

So, there are the bare basics. There are hundreds of details we could go into about the merits and disadvantages of investing in a fixed indexed annuity. And, when you factor in that there are a wide range of FIA products on the market, there is no way we can cover everything there is to know about them.

Here is one thing you should understand fully: There is a trade off when it comes to investing in an FIA. In exchange for principal and earned-interest protection, equity-index annuities limit the amount you can make if the markets go up. These limits can be pretty steep. To protect yourself, you need to understand what exactly you are getting into--especially when it comes to managing your performance expectations.

Annuities are not a good fit if you are looking to make a killing on the stock market.

However, if you are looking for a retirement investment strategy that protects your principal, has some good upside potential, and provides a predictable income stream in retirement, a Fixed Index Annuity may be something to consider.

Here are a few questions to ask when taking a look at Fixed Index Annuities:

"How are your market gains limited? Is there a cap on earning potential? Is there a fee? Is there a limit on the percentage of gains you can enjoy? Some annuities have all three. Be sure that you understand exactly what's in play when it comes to how your annuity can participate in market upsides.
"What are the "moving parts" of the contract? Depending on the product, insurance agencies can arbitrarily change a variety of factors that affect how your return is calculated. This includes changing participating rates, cap rates, and/or fees. Make sure you know what can change in your contract.
"Does the product offer a bonus for purchasing? If so, there's always a 'cost' to this. Nothing is ever free. In most cases, a bonus limits your liquidity options.
"Can you live without access to your money in the short term? While many FIAs allow you to access a small percentage of your money without penalty, you should consider your annuity a long-term investment. There are significant surrender charges for cashing out your annuity early. In addition, if you choose to begin your income stream prior to turning 59 your distribution may be subject to an additional 10% federal tax penalty.

By providing exposure to market-based gains and eliminating losses, fixed index annuities plans have historically out-performed the stock market over time. It is no wonder that these plans are one of the fastest growing asset classes with $150 billion invested over the past six years.

So, for some women, owning a fixed index annuity may make a whole lot of sense. For others, it may not. Remember, there's no one-size-fits-all solution for investing.

Give us a call if you would like to talk about whether an FIA is a good fit for your retirement plan. If it's not, we can certainly make other recommendations based on your exact goals for enjoying your retirement.