Today more than ever, retirees are struggling to feel reassured about their retirement savings. In recent years, fixed indexed annuities (FIA) have gained popularity by offering guarantees to income with potential for interest accumulation. And with an FIA you can sleep at night knowing that the next stock market crash won’t force you to alter your lifestyle.
With pensions no longer being offered by the majority of employers, fixed indexed annuities are a way to help create a stable and reliable income. While there are many self-proclaimed experts on the subject, consider the following FIA attributes:
A fixed indexed annuity is a contract between an insurance company and a retiree. The contract is funded by multiple payments over time or by a single lump sum payment.
Interest may be credited to an FIA at the end of each reset period. In most cases this is every 12 months, however, some contracts do offer longer reset periods. Interest earnings, typically subject to a limit, are tied directly to the upward movement of a specific index. Most index strategies offer a cap, participation rate, or spread based strategy.
All fixed indexed annuities have a floor of 0%. This means regardless of market performance, your principal will always be protected from any downturns in the market.
Once interest is credited to an FIA, it will not be lost due to future fluctuations in the market. An important factor to remember is that although interest is credited based on the movement of the index, the money is NOT ever directly invested in the stock market.
Interest in FIAs can compound year-over-year and interest credited is tax deferred, so no taxes are due until the funds are withdrawn, which allows for more growth. Note that early withdrawals may result in loss of principal and credited interest.
Aside from offering tailored indexing strategies, fixed indexed annuities may come with a wide variety of bonus options, living / death benefit riders, and surrender charge periods.
Living benefit riders often guarantee a specific percentage of growth or potential growth based on market performance each year in an income account. Growth in your income account occurs while the annuity is deferred or no withdrawals are being taken.
Living benefit riders can allow annuities to create a pension-like income payable for as long as you live.
FIAs typically mature between 5 to 16 years, which gives you the ability to select the time horizon that favorably suits your needs. There are many fixed indexed annuity products and features to choose from. Overall, FIA’s can offer safety and stability for retirees as part of a balanced portfolio, and can be an income solution during your retirement years.
If you are looking for a financial product to help provide sustainable income during retirement, a fixed-indexed annuity might be a good option for you. To learn more about FIAs and other retirement strategies, contact us to schedule your complimentary consultation.