A Guide to Indexes and Allocations on Fixed Index Annuities

Shawn Plummer

CEO, The Annuity Expert

With index annuities, you want to make sure you choose a good index and allocation as a strategy for growth over the contract.

Over the last 10 years, I get this question all the time, “Which index strategy should I choose for my fixed index annuity?”.

Frankly, in today’s world of annuities, it’s a bit frustrating.


Every annuity carrier is trying to develop their own proprietary complex strategy that’s the best thing since sliced bread.

I like to call these “funky indexes.” 

My terminology.  No one else’s.

These new indexes are strategies with some volatility or hybrid component that most folks don’t understand to a degree; the life insurance company creates a sales piece just for that strategy.

These indexes are typically “back-tested” and illustrate surprisingly higher than most traditional index strategies.

In some cases, the index is tied to long multi-year reset periods that illustrate above-average FIA returns.

And why are the traditional index caps and rates so low compared to the new and improved funky index?

When I’m asked about index and allocation choices, I always like to use the K.I.S.S. method…Keep It Simple, Stupid.

Little to no returns = negative meetings.

Suggesting the wrong index or strategy can lead just to that.

Here’s how I go about suggesting an index, allocation, and strategy.

 Choosing an Index on a Fixed Index Annuity

I like consistency, not the highest illustrated rate.

I typically choose traditional indexes that have a hard return history, not backtesting.

The only scenario I don’t mind the funky index is if there is a guaranteed benefit elected like an income rider or living benefit that will be used.

 Choosing an Allocation on a Fixed Index Annuity

I like a point-to-point strategy, preferably an annual point-to-point.

I’m not fond of fixed index annuity strategies that are longer than a 2-year reset (2-year point to point).

Reset periods are when interest is credited to a contract.

With index annuities, clients lock in their gains at every reset period.

Look at a reset period as the number of opportunities to earn interest.

Example:  Let’s take a 10-year contract.

  • If I choose an annual point strategy throughout the contract, I have 10 opportunities to earn or not earn interest.
  • If I choose a 2-year point strategy throughout the contract, I have 5 opportunities to earn or not earn interest.
  • You get the point.

I like participation rate strategies with no cap versus cap-driven strategies.

I also like annuity companies that publish their renewal rate history or have a reputation for maintaining their renewal rate history.

It’s common to see annuity caps and rates decrease over the period of the contract.

It’s rare to see those caps and rates increase over the contract.

If I’m running an annuity illustration, I like to use the “middle of the road” strategy to set expectations properly.

I also like to utilize software to research annuity products to find the best annuity with the perfect index strategies.

Below are just a few software programs to check out.

Annuity Comparison Software


I recommend sticking with a traditional index strategy like the S&P 500 or Dow Jones with no longer than a 2-year reset.

I like the participation rate strategies.

In my experience, the more vanilla a contract, the better for renewal rates. But, of course, this means no bonuses, nor bells and whistles.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

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

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