Have a Negative Perception of Annuities? Consider RILAs and FIAs
These annuities are tied to the performance of a market index and address concerns about high fees and complex structures.
In the realm of retirement planning, annuities have often been met with skepticism, with some financial experts cautioning against their potential drawbacks. However, a new wave of financial products is challenging this stigma and reshaping the narrative around annuities. Registered indexed linked annuities (RILAs) and fee-free fixed indexed annuities (FIAs) are emerging as innovative solutions that address concerns about fees and align more closely with savers' goals. In this article, we explore the unique features of these annuity products and how they are revolutionizing retirement strategies.
Among experts cautioning against annuities is financial guru Suze Orman. Her stance primarily stems from concerns about high fees and complex structures. Traditionally, annuities have been criticized for their lack of transparency and the potential for excessive costs eating into the returns. This skepticism has created a barrier for many investors, preventing them from considering annuities as viable retirement planning tools.
The rise of RILAs
RILAs have entered the scene as a modern alternative that aims to address the concerns associated with traditional annuities. For one thing, RILAs impose no direct fees to policyholders. The provider earns a percentage of the RILA’s investment return, similar to various mutual funds and other investment management programs.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
In addition, RILAs offer a combination of upside potential and downside protection. Returns are tied to a market index, enabling policyholders to:
- Realize gains up to a specific level
- Avoid losses beyond a certain level, if the underlying index experiences a decline
About fixed indexed annuities (FIAs)
Another recent arrival in the annuity marketplace is gaining popularity among retirement-conscious individuals. Like RILAs, FIAs charge no direct fees. They also link returns to a market index.
However, they differ in that FIAs offer a guarantee. Policyholders cannot suffer losses even if the underlying index declines. In return, their upside potential is limited to an annual cap — typically 7% to 11%, depending on the provider and annuity contract.
Investors may find it extremely attractive to track a market index performance with no chance of market losses and no fees, even though their upside capture is limited.
Advantages of RILAs and FIAs
No direct fees. RILAs and FIAs stand out for their fee-free structures, ensuring that a significant portion of the investment is dedicated to potential growth rather than being eroded by fees.
Market-linked returns. Both RILAs and FIAs offer market-linked returns, allowing policyholders to benefit from market upswings while providing protection during market downturns.
Downside protection. The innovative design of these annuities incorporates downside protection, mitigating the impact of market volatility and offering a more stable approach to retirement planning.
Transparency. The transparent fee structures of RILAs and FIAs address the concerns about hidden costs, contributing to increased transparency and fostering trust among investors.
Customization options. These annuities often provide customization options, allowing investors to tailor their policies to align with specific financial goals and risk tolerances.
Disadvantages of RILAs and FIAs
The downside to both RILAs and FIAs is that the performance is usually capped either on an annual basis or after a period of time such as six or seven years. Even though they are tracking well-known indexes, such as the S&P 500, these annuities do not credit dividends, only the price return.
They also have a surrender charge during their holding periods.
Lastly, if non-qualified money is invested, once the money is withdrawn, it is treated as income and not capital gains.
Changing the perception
The introduction of RILAs and fee-free FIAs challenges the prevailing negative perceptions surrounding annuities. By focusing on transparency, reduced fees and innovative structures, these products are shifting the conversation toward annuities as viable, cost-effective tools for retirement planning.
As more investors seek efficient and reliable strategies for securing their retirement savings, RILAs and FIAs are proving to be transformative forces, reshaping the perception of annuities and redefining their role in financial planning.
CRN202704-6303884
Related Content
- Are Bonus Annuities a Good Deal?
- Why So Many Experts Consider Annuities a Win for Retirees
- Annuity Payments Are 30% to 60% Higher: Time to Reconsider
- Too Heavy in Stocks? Annuities Could Be a Rebalancing Option
- Advisory Annuities Let You Eliminate the Middlemen
-
Ask the Editor: How to Get Ready for Tax Filing SeasonAsk the Editor In this week's Ask the Editor Q&A, Joy Taylor answers questions on the IRS tax filing season and your 2025 tax return
-
4 Simple 2026 Money Targets to Aim For (And How to Hit Them)While January is the perfect time to strengthen your financial well-being, you're more likely to succeed if you set realistic goals and work with a partner.
-
Everyone Needs an Estate Plan (Seriously, Even You)If you've acquired assets over time, even just a home and some savings, you have an estate. That means you need a plan for that estate for your beneficiaries.
-
4 Simple Money Targets to Aim for in 2026 (And How to Hit Them), From a Financial Planner
While January is the perfect time to strengthen your financial well-being, you're more likely to succeed if you set realistic goals and work with a partner.
-
I'm a Wealth Adviser: Everyone Needs an Estate Plan (Seriously, Even You)
If you've acquired assets over time, even just a home and some savings, you have an estate. That means you need a plan for that estate for your beneficiaries.
-
How to Be a Smart Insurance Shopper: The Price Might Be Right, But the Coverage Might Not BeChoosing the cheapest policy could cost you when you have a loss. You'll get the best results if you focus on the right coverage with the help of a good agent.
-
7 Reasons Why Your Portfolio Needs Short-Term Bond ETFsMoney market funds are a safe option for your cash, but ultra-short and short-term bond ETFs also deserve consideration. Here are seven reasons why.
-
I'm a Wealth Planner: Forget 2026 Market Forecasts and Focus on These 3 Goals for Financial SuccessWe know the economy is unpredictable and markets will do what they do, no matter who predicts what. Here's how to focus on what you can control.
-
I'm a Financial Adviser: Why In-Person Financial Guidance Remains the Gold StandardFace-to-face conversations between advisers and clients provide the human touch that encourages accountability and a real connection.
-
This Is How You Can Turn Your Home Equity Into a Retirement BufferIf you're one of the many homeowners who has the bulk of your net worth tied up in your home equity, you might consider using that equity as a planning tool.
-
Feeling Too Guilty to Spend in Retirement? You Really Need to Get Over ThatAre you living below your means in retirement because you fear not having enough to leave to your kids? Here's how to get over that.
