Suze Orman’s recommendation
“If you don’t want to take risk but still want to play the stock market, a good index annuity might be right for you.” – Suze Orman’s “The Road to Wealth.”
The financial expert and advisor Suze Orman recommends a specific type of annuity known as a “deferred fixed indexed annuity.” She has often discussed it in her interviews and books as an excellent option for those wanting a secure retirement income. This type of annuity provides a guaranteed minimum interest rate, and the earnings are linked to an index like the S&P 500. Therefore, if the index performs well, your earnings will increase accordingly. Additionally, the interest earned is tax-deferred, which means you do not have to pay taxes until you withdraw the money.
Understanding the deferred fixed indexed annuity
A deferred fixed indexed annuity is a long-term contract between an individual and an insurance company. In this type of annuity, you pay a lump sum, which the insurance company invests in the market. The earnings are linked to an index like the , meaning your earnings will increase when the index performs well. Additionally, this annuity comes with a guaranteed minimum interest rate, meaning you will earn a minimum amount regardless of how the market performs.
Advantages of a deferred fixed indexed annuity
One of the significant advantages of a deferred fixed indexed annuity is that it provides a guaranteed income stream for the rest of your life. Unlike other investments, you do not have to worry about market fluctuations or running out of money in retirement. Additionally, the interest earned is tax-deferred, meaning you do not have to pay taxes until you withdraw the money. Furthermore, this annuity protects against market downturns as the guaranteed minimum interest rate ensures you will continually earn a minimum amount.
Drawbacks of a deferred fixed indexed annuity
While a deferred fixed indexed annuity provides several advantages, it also has some drawbacks. One of the most significant drawbacks is the high fees associated with it. Insurance companies charge a commission for selling this type of annuity; the fees can be as high as 7-10% of the investment. Additionally, the annuity comes with a surrender period, which means that if you withdraw money before the end of the surrender period, you will have to pay a surrender charge..
Is a deferred fixed indexed annuity right for you?
A deferred fixed indexed annuity is a good option for those who want to secure their retirement income and want protection against market downturns. However, it may not be suitable for everyone. Before investing in this annuity, you should consider several factors, such as your age, financial situation, and retirement goals.
Factors to consider before investing in a deferred fixed indexed annuity
One of the significant factors to consider before investing in a deferred fixed indexed annuity is your age. This annuity is designed for long-term investment and may not be suitable for those close to retirement age. Additionally, you should consider your financial situation and retirement goals before investing in this annuity. If you have other investments that provide a steady income stream in retirement, you may not need to invest in this annuity.
Consulting with a financial advisor
Consulting with a financial advisor is essential before investing in a deferred fixed-indexed annuity or any other investment. A financial advisor can help you determine whether this annuity suits you and provide personalized advice based on your financial situation and retirement goals. Additionally, a financial advisor can help you understand the fees associated with this annuity and explain the surrender period and other terms and conditions.
Next Steps
In conclusion, a deferred fixed indexed annuity is a type of investment that Suze Orman recommends for securing retirement income. It provides a guaranteed minimum interest rate and protection against market downturns. However, it has some drawbacks, such as high fees and a surrender period. Before investing in this annuity or any other investment, it is essential to consider several factors, such as your age, financial situation, and retirement goals. Consulting with a financial advisor can help you make an informed decision and ensure your retirement income is secure.
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Frequently Asked Questions
What does Suze Orman say about annuities?
According to a recent Women & Money podcast episode, Orman clarified that she doesn’t dislike all annuities and thinks certain types are worth considering.
What are annuities pros and cons?
Annuities are financial products that offer guaranteed income, making them popular among retirees. The pros of annuities include a steady income stream and tax-deferred growth, while the cons include high fees and limited liquidity. It’s important for individuals to carefully consider both the advantages and disadvantages before investing in annuities.
How does an annuity calculator work?
An annuity calculator is a helpful tool for determining future income. It calculates regular payments based on factors like investment amount, interest rate, and time frame. By inputting these variables, users can estimate their annuity payments and plan accordingly.
What are annuity do’s and don’ts?
When considering annuities, it is crucial to be aware of the do’s and don’ts. To understand the terms and conditions, evaluate the fees, and consider tax implications. Don’t rush into a decision, overlook surrender charges, or ignore the fine print. Being well-informed can help individuals make the most suitable choice for their financial future.
What is a fixed index annuity?
A fixed index annuity is a type of insurance contract that offers a combination of guaranteed interest rates and potential growth linked to a specific stock market index. It provides a level of protection against market downturns, making it an appealing option for individuals seeking stability and growth in their retirement savings.
What is a variable annuity?
A variable annuity is a type of financial product that offers investors the opportunity to receive a regular income during retirement. Unlike traditional fixed annuities, variable annuities allow individuals to invest their premiums in a variety of underlying investment options, such as stocks and bonds. The value of the annuity is dependent on the performance of these investments.
What is an immediate annuity?
An immediate annuity is a type of insurance contract that guarantees a regular stream of income in exchange for a lump sum payment. Unlike deferred annuities, immediate annuities begin paying out immediately, making them ideal for retirees looking for a steady income stream.
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