Why You Should Consider a Fixed Indexed Annuity
How you manage your hard-earned retirement money is no game. If you have worked a lifetime and seen your IRA or 401(k) balance grow to a substantial sum, what will you do with that money when you actually retire? In today’s low interest rate environment, it can be a challenge to generate much income. While you may get double-digit returns in the stock market, you can also lose money when the market goes down.
Finding the right balance between growth and preservation of capital depends on your stage in life, your tolerance for risk, and your financial goals. When you are nearing retirement, or already retired, the money you need to pay your bills and live a comfortable lifestyle should be considered your “living” money. If you want protection of principal from market downturns, some interest growth, and a minimum guaranteed interest rate, a fixed-indexed annuity may be just the financial product for a portion of your retirement money.
What is a fixed indexed annuity?
Sold by some of the largest and most reputable insurance companies, a fixed indexed annuity is a fixed annuity that also provides an opportunity for potential interest growth based on changes in one or more market indexes without participating in the market.
Even though an external market index or indexes can affect your contract values, the contract does not directly participate in any stock or equity investments. You are not buying shares of any stock or index fund.
With a fixed index annuity, you can allocate its value to one or more chosen indexes. The insurance company then uses a crediting method to track the performance of the index(es). At the end of each contract year, the company calculates the index interest. If the result is positive, the contract will be credited with the index interest, subject to a cap, participation rate, or spread. That interest is locked in each year and cannot be lost due to index declines at some point in the future. If the result is negative, the contract will not be credited with index interest for the year, but the annuity's value doesn't decline either.
Recently, fixed indexed annuities with an "uncapped" crediting method have gained in popularity. When you see the term "uncapped," know that instead of a cap there will be some form of control on interest crediting, possibly a participation rate, or a spread. Uncapped annuities can be an attractive alternative to consider for a percentage of your nest egg but it's important to realize there is a cost to the protection and guarantees associated with your annuity. The companies offering these annuities have controls in place to ensure that "uncapped" does not mean "unlimited." Uncapped fixed indexed annuities can provide protection from market downturns and offer the possibility of higher interest rates than some other low-interest-rate financial instruments. If you are purchasing a fixed indexed annuity be sure to do your research on what method is being used to regulate the interest crediting.
Understand what you are buying
It is reasonable to say that the average consumer may not fully understand the terminology used with fixed indexed annuities. Even sophisticated consumers find annuities require understanding. Not all fixed indexed annuities are alike.
With so many annuity products on the market being offered by a wide range of insurance companies, it may benefit you to work with an independent agent that represents more than just one insurance company. Crown Atlantic has a nationwide network of independent agents that have access to the annuity products offered by many different companies. Put Crown Atlantic to work for you. Their experienced agents can meet with you to review your total financial picture and put together a strategy that will help you get the most from your retirement dollars.
Annuities are long-term insurance contracts designed for retirement. As a result there may be fees or penalties for early withdrawals, including surrender charges, and if taken prior to age 59 1/2, withdrawals may be subject to a 10% federal additional tax.
Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company; they are not insured by the FDIC.
A fixed indexed annuity is not a registered security or stock market investment and does not directly participate in any stock or equity investments, or index. The applicable index is a factor that in part determines the interest to be credited.