Can Index Annuities Lose Money?

Shawn Plummer

CEO, The Annuity Expert

Can Index Annuities Lose Money?

Understanding Index Annuities

Index annuities are financial products that offer a return based on a specific market index, like the S&P 500. They are designed to protect against the loss of principal, meaning they typically don’t lose money due to market volatility.

Risks and Losses in Index Annuities

  1. Fees and Charges: Index annuities often come with various fees, such as administrative fees, mortality and expense risk charges, and surrender charges. These fees can eat into your earnings, potentially leading to a loss.
  2. Underperformance: While your principal is protected against market downturns, if the index performs poorly, your returns could be minimal or even zero. Inflation can also erode the purchasing power of your annuity, leading to a loss in real terms.
  3. Caps and Participation Rates: These annuities often have caps on the returns you can earn and set participation rates. This means you might not fully benefit from a rising stock market, leading to opportunity costs.

Index Annuities vs. Stock Investments

FeatureIndex AnnuitiesStock Investments
Risk of Losing PrincipalLow (protected)High
Potential for High ReturnsLimitedHigh
FeesYes (can be high)Varies
Market Volatility ImpactMinimalHigh
SuitabilityConservative InvestorsRisk-Tolerant Investors


Index annuities offer a balance between risk and reward, protecting the principal from market losses but limiting potential gains. They can lose money due to fees and underperformance relative to the market. Understanding the structure of these products is key to determining if they align with your financial goals. Contact us today for a free quote.

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Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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