Understanding Fixed Indexed Annuities

Fixed Indexed Annuities, Fixed Annuities, Retirement Planning

What is a Fixed Indexed Annuity?

Fixed indexed annuities are secure investment vehicles issued only by life insurance companies. Fixed index annuities offer the guarantee of principal and the potential of market-linked growth, with no risk of losing principal due to market swings. The fixed index annuities have the same features, benefits and guarantees as traditional fixed annuities plus the potential for you to earn greater interest credits. Annuities are like pensions, most pension plans use insurance companies for their pension payouts.

Benefits of Annuities:

Guarantee of Principal: With a fixed indexed annuity, you are guaranteed the safety of your principal, regardless of stock market fluctuations. The insurance industry is regulated and cannot place policyholders’ money at risk. This was big deal for me after the 2007-2008 crash. If my retirement money in 2009 had stayed the same as it sat in 2006, I would be doing cartwheels. Instead, because my money wasn’t in a fixed indexed annuity, I had a 42% loss of my retirement savings – even while making 401K contributions during that time. When nearing retirement age, don’t make the mistake I made. Protect your retirement income by transitioning to the security of a fixed indexed annuity. Tax Deferred Growth:  Any interest earned in your fixed indexed annuity is tax deferred. What does that mean for you? Quicker growth over a shorter period of time. Guaranteed Lifetime Retirement Income Stream: People are living longer than ever. That means your retirement income must last longer than ever before. Retirement Income Author Tom Hegna suggests planning for longer than you expect. He says, “You cannot plan to have income until age 90 any more – you really need to plan to have income until age 100 and possibly beyond.” My parents are 87 and 84 and going strong. I feel I need to plan on 30 years and probably an extra 5 years for my wife in retirement. Will your money last 30 years? A fixed indexed annuity guarantees a yearly sum, no matter how long you live. That means you’ll have the security of a check in the mailbox every month for the rest of your life. Liquidity:  Typically, you can get penalty free withdrawals up to ten percent, once each year after the first year (check your contract). While somewhat limited, the benefits of the guaranteed annual payments outweigh the liquidity concerns for most investors. Especially when close to retirement age, this level of liquidity should not be cause for concern. Give a trusted insurance company your money and they’ll guarantee X dollars now and X+ dollars in the future. I placed $100,000 in a fixed indexed annuity with a strong A-rated insurance company. My wife and I will receive a minimum guarantee of $10,000 per year the rest of our lives at age 67.  This money was originally banked for retirement and my bank’s returns were not satisfactory. While I will not touch this money until I retire and I know exactly how much the monthly guaranteed payment will be. Additional Liquidity Safety Net:  Some contracts give you a 100% penalty free withdrawal for a terminal illness after the first 12 months. And a 100% penalty free withdrawal after the 3rd year if confined to a qualified nursing home.  Not all contracts are created equal please get competent advice. Annuities Avoid Probate:  In almost all cases, annuity proceeds go to your beneficiaries upon death of the investor. This benefit helps you avoid the additional loss of probating.Depending on the terms of your annuity, the beneficiary may receive a lump sum or number of payments. Upfront Bonus:  Some annuity companies offer incentive bonus money for moving your IRA, 401K, savings and or investments. Do you have Long Term Care Coverage?  Some fixed indexed annuity contracts offer additional payouts – up to five years – if you’re unable to do two of the following tasks: bathing, dressing, feeding, toileting, continence and transferring (moving in or out of bed) by yourself.  The additional payments could provide the necessary care needed.

Commonly Asked Questions:

Are Fixed Indexed Annuities registered investment products?  No. Almost all fixed indexed annuities are insurance contracts, regulated by state law and state insurance departments. Can Contract-holders make withdrawals from their Fixed Indexed Annuities? Yes, see the section on liquidity above. What is the likelihood that the insurance company will go out of business?  Very unlikely. Guaranteed fixed indexed annuities are considered safe because the underlying premiums are not subject to loss in the stock market.  Each state has an insurance commissioner who reviews products issued by that company in their own state. That commissioner makes sure that the company keeps a sufficient surplus on hand to satisfy claims. Also, your premiums are primarily put into U.S. Treasury and investment grade corporate bonds, so the money is not at risk in the equity markets. The fixed index annuity is a proven success story for retiree’s needing guaranteed income during retirement. Insurance = Safety

Request a Quote

Call 801-685-6860 or fill out the form below to get started or start a conversation. 

Related Posts