Advantages of Indexed Annuities

The fixed index annuity is a concept designed to help an investor reach retirement goals. The Indexed Annuity can give you the best of both worlds: Market growth that is linked to specific investments without the risk of losing the principal and a guarantee of the principal.

Principal is Guaranteed

The fixed index annuity provides the investor with one of the best features from traditional fixed annuities, and that is a guarantee of the principal.

Investing in annuities can be risky business, however the fixed annuity, which is also referred to as the "equity indexed annuity" guarantees that monies deposited into the investment will never go down because of unstable markets. This can be guaranteed because only a portion of the annuity principal is invested into market-indexed investment while the other portion is not. The portion that is not is treated just like a fixed annuity.

Tax Deferred

The fixed index annuity grows tax deferred until payout to the annuitant.

Annuity contracts typically allow up to 10% of the total annuity amount to be withdrawn one time each year without penalty. However, the annuitant must wait after the first contract anniversay.

Income for Life is Guaranteed

One of the best features of the fixed index annuity is that it can provide the annuitant with a guaranteed income stream.

The annuitant has many payout options to choose from. In addition, the non-qualified plans offer the annuitant the opportunity to make non-taxable withdrawals which represents a return of premium, this feature reduces the income tax on annuity payments.

Potential of Stock Market-Linked Growth

The fixed index annuity has some very unique features that is very attractive to investors. The traditional fixed annuity is the safest of annuities for investors, however the growth is fixed, low and virtually risk free. Many compare it to CD's.

However, the fixed indexed annuity also offers a portion of the principal to be invested in stock market linked interest credits. This portion is variable, higher returns and higher risk. This traditional fixed portion actually protects the principal from complete loss of the stock market linked portion.

In contrast to a securities-type product or mutual fund where the investor bears the market risk, the fixed index annuity concept insulates the contract owner from any risk of loss of principal due to market downturns.

What is Indexing?

Earnings on a fixed index annuity are based on stock market-like performance from certain indices. But what is indexing? Indexing is simply an investment strategy that follows the performance of select securities, such as the Standard & Poor’s 500® Index. The S&P 500® is a collection of 500 select industry leaders and thus a benchmark for U.S. Stock Market performance. A fixed index annuity is linked to the performance of this type of market index, without the risk of directly participating in stock or equity investments. With indexing, you can participate in a diversified passive investment strategy: a link to the market and its potential gains without subjecting yourself to the potential downfalls of the market.

Expectations for the Fixed Index Annuity

Fixed index annuities have the potential for market-linked interest without exposure to the market risk. Contract owners enjoy the guarantees and safety of principal even while being linked to market growth. However, they should not expect fixed index annuities to mirror the exact performance of any stock market indices.

Since a fixed index annuity uses a passive investment strategy, it will not mirror the exact return of the stock market index. The fixed index annuity is a powerful financial tool designed to meet your long-term retirement needs.

Does it sound like a Fixed Indexed Annuity might be right for you?