Fixed Index Annuities – Principal Protection, Growth, and Income for Life

saving and retirement


This article is designed to give you the pros and cons of fixed indexed annuities as a long term retirement planning and distribution vehicle. Please contact us if we can help you in this area.

Saving for retirement and planning for taking retirement income is an area of concern for all of us.  With the ups and downs of the market along with the large variety of products available, many do not know where to put their hard earned dollars.  Many of the clients we work with also have concerns about outliving the money they have saved over the years. If you have an old 401 (k) from a job or money in a savings account or a bank CD that isn’t offering much interest, contact us and we can explain the benefits of how a fixed index annuity may make sense for a portion of your retirement savings. These products are designed for people who want the potential for growth but wish to be shielded from market downturns.

What is a Fixed Index Annuity?

A Fixed Index Annuity is a long term retirement product issued by an insurance company.  The funds deposited into the contract can credit interest based on the performance of an external stock market index such as the S&P 500, NASDAQ 100, JP Morgan MOSAIC, or Merrill Lynch Strategic Balanced Index, etc.  If the chosen market index increases in value, then your account will be credited with a % of the gain for the chosen index period.  If the chosen market index decreases in value, then your account will be credited with 0% for the indexing period.  This can be calculated monthly, annually, or over a period of multiple years that we can help you determine.  During an index period for which you are credited 7% for example, that gain is then locked in.  A new indexing period begins, and the gains from the previous period cannot go down or be taken if that index period has a negative return.

In summary, you get to participate in the index gain, but are shielded from loss in the event of a bad market period.  So, your return will never be less than 0%, and in a favorable period, you will be credited with some of the gain.  The crediting percentage depends on the terms set forth by the insurance company, and is why we represent many carriers that offer various options.  Your interest from one interest crediting period to another will be different, but once interest is credited for a particular period, those gains are locked in.  So, you have upside, but are protected if the index goes down.

Fixed Index Annuities offer safety of principal, opportunity to participate in a portion of a stock market index return, guarantees against losing principal during downturns in the market index, and can generate income that you cannot outlive using an optional income rider at a reasonable fee that is built into the contract at the time of purchase.

What are the positive features of a Fixed Index Annuity?

  • Safety: Backed by highly rated, state regulated insurance companies
  • Tax Deferred Growth
  • Participate in a portion of a stock market index gain such as the S&P 500, Dow Jones, with no risk of loss of principal
  • Potential for Higher Return: Typically higher interest rates than bank CDs, money market accounts, and bonds
  • Life Insurance Options: Death payout guarantee options available
  • Liquidity: Flexible withdrawal privileges, typically 10% per year
  • Unlimited Contributions, unlike IRAs and 401(k)s
  • Pass money directly to beneficiaries bypassing probate
  • Lifetime Income Option: Income you can’t outlive using an optional rider

What are the negative features of a Fixed Index Annuity?

  • Indexed Annuities typically do not credit dividends to your account
  • Gains are locked in at the contract anniversary date; so timing can impact performance
  • Surrender Charges – this is a long term strategy and not appropriate for someone who does not have a long time horizon (7-10 years), as you will be penalized if you surrender the contract early or take out more funds than the minimum withdraw amount

We work with several national, independent annuity brokerage firms that offer the best fixed-indexed annuities from highly-rated and very established insurance companies.  We can help custom design a suitable solution for your accumulation and income needs in retirement.

Contact us for more information and a quote from the top annuity companies in the business.

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