Fixed Index Annuities
What is a fixed index annuity? A fixed index annuity (FIA) is a contract between you and an insurance company. In exchange for the money you place in your annuity, the insurance company guarantees several benefits – including a steady stream of retirement income. And because it’s designed to help you prepare for retirement, a fixed index annuity provides certain tax advantages as well. The performance of FIAs are tied to specific underlying stock indices. What does that mean? Good question. Essentially, it means your money grows according to either a fixed rate or the performance of the indices you choose – or both. If you choose to allocate your money to the available indices, your money won’t grow uniformly as with a fixed annuity. Instead, your growth will be based on the growth, if any, of the indices you have chosen. This also means there is opportunity for a higher yield relative to a fixed rate at the end of your term. Do you need to worry about market uncertainty? Any financial product with ties to the market comes with some inherent risk, but fixed index annuities register low in terms of risk. The initial money you put into this annuity type is not actually invested in stocks or bonds. The index strategy options of the product will never result in negative interest credited to your contract, which means you are protected from dips in the market when stocks – and other more volatile investment options – lose value. You have an opportunity to track the returns of indices that are provided and administered by leaders in the index industry, making your return linked to the performance of these indices. From there, the interest earned is credited based on your selected index’s performance. If the value of the index goes up during a defined period, so does the interest you earn. What does that look like? Great question. Let’s break it down with a hypothetical example below.
This chart assumes no fees, charges, or withdrawals are taken from the FIA during the illustrated period and reinvestment of dividends is not included. Index past performance is not indicative of future results. The hypothetical performance of the fixed index annuity, as illustrated, assumes a $100,000 premium, a cap of 10.00% (using the 1-Year Point-to-Point with Cap crediting method only) and assumes no withdrawals or surrender charges during period shown. This hypothetical example is for illustrative purposes only and not intended to be the performance of any specific product.
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