Which of the following risks is NOT associated with purchasing a fixed annuity?

When evaluating the risks associated with purchasing a fixed annuity, it is essential to understand what each option represents. Fixed annuities provide a guaranteed interest rate over a specified period, which can provide a sense of security and predictability in income.

The option related to compound interest is not a risk associated with fixed annuities. Instead, fixed annuities typically benefit from compound interest, where interest earnings are reinvested to generate additional earnings. This compounding effect enhances the growth of the investment over time and contributes to the overall value of the annuity.

On the other hand, low interest rates can diminish the returns of fixed annuities, making the opportunity for higher returns less favorable. Inability to keep pace with inflation is a significant concern for fixed annuity holders because while the nominal interest rate may be stable, the real purchasing power of the guaranteed income can erode over time due to inflation. Low liquidity is also a consideration, as fixed annuities generally come with surrender charges and penalties for early withdrawal, limiting access to funds.

In summary, the characteristic of compound interest is a positive aspect of fixed annuities rather than a risk, making it the correct answer to identify which risk is not associated with purchasing a fixed ann