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Disadvantages of Fixed Annuity

Like everything else in life, even though fixed annuities offer several advantages, they also have their disadvantages. Probably the most significant disadvantage is that by locking in the fixed annuity’s fixed rate of interest, the policyholder might lose out on any potentially greater gains that could be realized if the same funds were invested in the stock market.

A second potential disadvantage of the fixed annuity involves the fact that the benefit payout amount will be a fixed amount. While this fixed payout amount will be viewed by some annuity holders as a decided advantage, others will realize that, over time, the fixed benefit amount will lose ground against inflation with the potential reduction of spending power over time. For example, if we have annual inflation of 4 percent, the purchasing power of the fixed monthly payment would be halved in 18 years.

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