What are the Benefits of Fixed Index Annuities?
A fixed index annuity has many great benefits it can provide to retirees. The money you worked hard for remains safe. That means even if you choose an index that drops in value, you won’t have any losses. The law actually requires insurance companies to keep your money safe. This means you have the opportunity of gains if your index does well, all with protection from the insurance company and without the risk of losing your hard-earned money. With a set reasonable rate of return,** you won’t need to worry about losing your nest egg if the market is down. For many retirees, this gives them the peace of mind that they won’t outlive their retirement savings.
What Affects Potential Interest Rates?
Some fixed index annuities (FIAs) set a ceiling on the amount a contract can earn, otherwise know as a CAP, during a certain time period. This is usually a month or year. If your chosen index increase goes over the cap, the cap is then used to calculate your interest instead of the index rate.
Some fixed index annuities (FIAs) implement participation rates after caps. This means a participation rate will be used to measure your indexed interest rate. These are generally applied after caps but before a spread.
Certain fixed index annuities (FIAs) use a spread to determine indexed interest. They deduct a percentage from the accumulations of the index reaches within a set term. For example, if an annuity spread is 4% and the index increase by 10% – the annuity contract would get a credit of 6% indexed interest.
Indexed Interest Potential
Another benefit of fixed index annuities is the buyer’s choice of crediting method. Basically, the insurance company abides by a set of rules and timeframes to calculate the index interest on your annuity, if there is any. For example, a buyer can choose a monthly or annual crediting method. Additionally, some methods of crediting use an average of value over a period of time. Others base their interest on the differences in rates over a period of time. Another choice of crediting methods marks the change of the index front the first-anniversary contract date. A year later the interest is calculated, based on that change.
What is the growth Potential Of A
Fixed Index Annuity?
Before we can understand growth, first let’s learn how a fixed interest rate is calculated for your annuity. You can choose an index – or multiple indexes, to link to the annuity. There are many different options to choose from for different types of indexes. Don’t worry you don’t need to figure this out all by yourself. Our team here at Cornerstone Wealth & Tax Advisory can help you navigate your options. Once you choose, the insurance company will track how well your chosen index(es) doing by using a crediting method. Finally, at the end of the year, the policy provider (the insurance company) will set the interest rate.
When the rate reaches above a specific point, you get the index interest earnings. If the index drops, you’re in luck. Your annuities value won’t drop just because the index did. To be clear, the interest rates depend on other factors like spread, cap, and participation rate. Every situation varies, so each choice somebody makes regarding their annuity will be different. There is no one size fits all solution when it comes to fixed index annuities (FIAs).
