The Equity Indexed Advantage
An fixed annuity is a great retirement planning tool because it does three things… First, an annuity enables your money to grow tax-deferred, which is a big advantage over CDs. Secondly, your principle is protected because fixed annuities are guaranteed by the insurer. Finally, when you retire, an annuity gives you an income stream that you cannot outlive. The main disadvantage of annuities is that they are long-term products and usually have surrender charges for early withdrawals.
Variable annuities provide investors with a chance at gains over-and-above fixed annuities because premiums, less any applicable charges, are invested into one or more separate accounts comprised of stock and bond market holdings. The problem for many investors is that in additional to the opportunity for higher returns, there is the risk of losing money.
But there is another option. Fixed indexed annuities have characteristics of both a fixed interest annuity and a variable annuity. Similar to a variable annuity, the insurance company pays a rate of return on annuity premiums that is tied to a stock market index, such as the Standard & Poor’s 500 Composite Stock Price Index. But unlike variable annuities, indexed annuities provide a minimum guaranteed interest rate.
This means that an indexed annuity provides the opportunity to benefit from potential gains in the eqauity markets, while paying a stated minimum interest rate during market declines. These products may be ideal for people who want to take advantage of the earnings potential of the stock market without all of the risks associated with equity investing.
WARNING: Indexed annuities are offered by many companies, and they are not created equally. Make sure that you’re buying from a reputable company and agent, and make sure of the following:
- You understand the surrender charge schedule
- You understand how interest will be credited to your account
- The insurer guarantees 100% of your principle, less withdrawals
- Any fees and expenses associated with the account
To learn more about the advantages of Fixed and Fixed-Indexed Annuities, contact us and ask for Steve Musser.