What are the Disadvantages of Fixed Annuities?
As with any investment, there are both pros and cons to the financial vehicle. This is very much the case with fixed annuities. While the fixed annuity can provide a definite and recurring stream of income, it can also come with steep penalties if you change your mind. Most annuity contracts have sharp surrender penalties if you attempt to get your money out faster than the predetermined rate. This also makes the investment rather illiquid. Another weakness of many fixed annuity products is that they generally do not adjust for inflation well. Fixed rate annuities with life income will gradually lose their purchasing power over time. Not all fixed annuity products have this problem, and simply understanding that this can happen can allow you to implement strategies to combat this problem. Many weaknesses of financial products can be overcome with comprehensive financial planning. See article on the disadvantages of fixed annuities for more information.
