Indexed annuities can be a good option for some people, but they are not the right choice for everyone. This guide will discuss when you should consider an indexed annuity and what to look out for. We’ll also provide quick facts and key considerations about this investment vehicle.
Table Of Contents
- Which of the following is true for both equity indexed annuities and fixed Indexed annuities
- Which of the following is true for both equity indexed annuities and fixed annuities
- Indexed Annuities Are considered to be an alternative To
- Indexed Annuities At a Glance
- Who Bears All The Investment Risk In An Indexed Annuity?
Which of the following is true for both equity indexed annuities and fixed Indexed annuities
Equity indexed annuities provide all of the following features:
- Principal Protection: A fixed index annuity allows you to benefit from the rising market. When the stock market falls, your account value is safeguarded.
- Taxes Are Deferred Until The Future: You won’t pay taxes on the interest if you have a fixed deferred annuity. Instead, when you take money out of your fixed index annuity in the future, you will owe taxes.
- Compounding Interest: Compounding is the norm in indexed annuities.
- Fewer Fees: Annuity owners will pay a portion of variable annuity expenses in a fixed index annuity.
- Lock-In Your Gains And Never Lose Them: Every time you earn interest, you lock in your gains. You never lose money that you have earned. The Annual Reset Strategy is the name for this approach.
- Guaranteed Income For Life: An income rider is a fixed payment that will not outlive your life. It’s also known as a Guaranteed Lifetime Withdrawal Benefit (GLWB). To obtain an estimate of how much it will cost you, use our annuity calculator.
- No Contribution Limits: An indexed annuity allows you to invest as much money as you want in it. It may be beneficial for retirees who are trying to save more or who have exhausted their 401(k) and IRA contributions.
- Long Term Contracts: Indexed annuities can range in term length from 5 years to 16 years. A ten-year indexed annuity contract is the norm.
- Limited Upside Potential: A typical index annuity will generally outperform a traditional fixed annuity in terms of rate of return. If you want to take the risk of losing part of your money by investing in equities or bonds, you should invest in a variable annuity rather than an index annuity.
- Annuities with premium bonuses can hinder long-term growth.
- Caps and participation rates can fluctuate, reducing the ability for consistent growth.
- Most lifetime income riders pay a “level” income that never increases to keep up with inflation.
- Most index strategies are new and complicated. As a result, fewer and fewer traditional indexes (S&P 500, Nasdaq, and Dow Jones) are used.
- Fees can reduce the account value.
Which of the following is true for both equity indexed annuities and fixed annuities
- Principal Protection: A fixed index annuity allows you to benefit from the rising market. When the stock market falls, your account value is safeguarded.
- Taxes Are Deferred Until The Future: You won’t pay taxes on the interest if you have a fixed deferred annuity. Instead, when you take money out of your fixed index annuity in the future, you will owe taxes.
- Compounding Interest: Triple compounding is the norm in indexed annuities.
- Fewer Fees: Annuity owners will pay a portion of variable annuity expenses in a fixed index annuity.
- Lock-In Your Gains And Never Lose Them: Every time you earn interest, you lock in your gains. You never lose money that you have earned. The Annual Reset Strategy is the name for this approach.
- No Contribution Limits: An indexed annuity and fixed annuity allows you to invest as much money as you want in it. It may be beneficial for retirees who are trying to save more or who have exhausted their 401(k) and IRA contributions.
- Long Term Contracts: Indexed annuities can range in term length from 2 years to 20 years.
Indexed Annuities Are considered to be an alternative To
- Traditional fixed annuities
- Multi-year guaranteed annuities (MYGA)
- Bonds
Indexed Annuities At a Glance
| Equity Index Annuity | Fixed Index Annuity | Fixed Annuity | |
|---|---|---|---|
| Principal Protection | Yes | Yes | Yes |
| Access To Principal | Yes | Yes | Yes |
| Control Over Money | Yes | Yes | Yes |
| Tax-Deferred Growth | Yes | Yes | Yes |
| Guaranteed Growth | Yes | Yes | Yes |
| Guaranteed Income | Yes | Yes | Yes |
| Inflation Protection | Yes | Yes | No |
| Death Benefit | Yes | Yes | Yes |
| Long-Term Care Help | Yes | Yes | Yes |
Who Bears All The Investment Risk In An Indexed Annuity?
An annuity is a type of insurance since there is an amount at risk. An insurer relies on the insured living long enough so that the premiums paid and interest earned will equal or exceed the policy’s death benefit with an insurance policy. With annuities, the insurance company is counting on the annuitant not outliving the principal and interest.