Fixed Indexed Annuities
Fixed indexed annuities are designed to receive upside potential from the market indexes without any downside risk. They track the performance of the indexes through the stock market to determine the growth within the account. Every insurance company that offers fixed indexed annuities have their own chosen indexes for growth within the product. Examples of these indexes would be the S&P 500, the Nasdaq 100, the Shiller Index, the Barclays Dynamic, and more.
Although index annuity returns are ‘tied’ to the performance of these indexes, it is important to note that shares are not directly purchased with the funds of an indexed annuity. Simply put, the insurance company will look at the overall returns of the index and credit your account based on its performance. An indexed annuity will capture a portion of the upside while protecting you from the downside. Always keep in mind that allowing yourself to be fully engulfed into the stock market can leave you at risk to lose everything. Is the reward of going up a little worth the risk of going down a lot?
Every index annuity features a minimum rate of return regardless of index performance. This rate varies from contract to contract, generally from 1-3%. The minimum rate guarantees that whenever the index decreases in value, your account is still growing.
While fixed indexed annuities are tax-deferred their options make them a preferred protection vehicle, perfect for retirement savings. Your account can accumulate value tax-free and indefinitely until income is cashed out. Under normal circumstances you would delay cashing out as long as possible to earn compound interest on what would have been the government’s money had you invested in a CD or mutual fund.