What Is A Fixed Index Annuity?

For some of you, retiring is the last thing on your mind as it is a larger number of years away than what your current age is; and then many of you will be heading into retirement in less than a year or even a few weeks. However, everyone is pretty much going to experience the last decade of work before they retire.

During this time, it can be a bit challenging as you may still have to grow your investment portfolio, and that involves using the market which has its dangers, but at the same time, you need to save and maintain your funds for your retirement. It’s a bit of a paradox, but you can do both of these things by investing in a fixed index annuity.

Generally, it is a hard feat to have a vehicle that provides profits from market performances while keeping the risk at bay. This cannot be done with traditional accounts, bonds, or stocks. However, a fixed index annuity can help, but the profit gain will not be as high as a normal market gains investment platform as you will have a safeguard from a bad market.

For those that do not know, an annuity is an agreement between a buyer and an insurer in which the buyer provides either a lump-sum deposit or pays into an annuity over time. Once complete, the insurance company will provide a guaranteed income in the future after a waiting phase. The period of wait varies on the annuity as some can be immediate, and others may take a few years or so.

Specifically, an annuity with a fixed index is featured to disburse steady payments from interest. However, instead of it being completely “fixed,” the interest gained is attached to an index or possibly indices.

Because the annuity is attached to an index, you may be able to receive higher returns depending on the market performance. However, this is the same for variable annuities. What makes a fixed index annuity different is that your investment is protected when the market is bad.

A majority of these particular annuities will have a limit to how much you can gain on your return. There will also be a limit on how much you can lose to safeguard you from a bad market.

For instance, John, a general manager, age 55, purchases a fixed index annuity with an upside cap of 8 percent. Here is what could happen:

If the indices gain 15 percent in a year, you would only receive 8 percent as your limit is to this amount. If the gains percentage is lower than 8 percent, you would receive the entire amount. Now, if your annuity ends up with a loss of 5 percent, you just wouldn’t get a payment that year for interest. However, you wouldn’t lose anything on your initial investment. This is quite a unique set up as other investment vehicles that deal with the market do not have risk protection like a fixed index annuity does.

It seems that many people think that annuities are complicated and not worth the hassle, but these products can be pretty simple and can be easy to understand.

When you buy into an index annuity, the interest rates can vary depending on how the investment performs. However, if you by into an annuity that has a locked-in rate, this cannot be changed in any way.

Also, the limits of gains and losses should be pretty straightforward. If your gains limit is agreed to be five percent., then you will be able to receive a return up that amount if the indices earn 5 percent or higher. If there is a negative return on the indices, you do not take any losses. No other factors should conflict with this essential agreement in the contract. But make sure that you understand all guarantees and percentages before agreeing to the purchase on a fixed index annuity.

You may be seeking to limit your capital risk as you get close to retiring, but also may also have a need to boost the growth of your assets.

Revising and restructuring your current assets and investments into an indexed annuity may be something that can assist you with increasing your portfolio value, but also keep it safeguarded from economic trouble. ⠀