Have been hearing a lot recently about indexed annuities. Any thoughts and/or comments would be appreciated. Thank you.

Terry Says:  I have written in the past about indexed annuities, and I’m not a fan.  Typically, they make the broker rich, not the investor.  Most of these products appear to give you a limited risk and huge upside — but there are limitations on the payouts, and high costs — all of which mean the insurance company must come out the winner.  The details such as “the index — minus dividends” are where they get you. Did you know that 40% of the long-term return of the S&P 500 comes from dividends??  (The insurer gets to keep those out of the payout when it excludes dividends as part of the calculation!)  Or the dates on which the pricing is fixed work against you.  And the list of caveats goes on and on, along with fees.

My suggestion is to accept a certain amount of stock market risk inside an IRA for tax-deferred growth.  And to keep some “chicken money” on the side for safety.  The proportions depend on your own situation.

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