Annuities
Indexed Interest Potential
Advantages of a Fixed Index Annuities
The key to a successful retirement is a flexible, long-term strategy. Financial security and income stability are key benefits of a fixed index annuity (FIA).
Income Stability
Fixed index annuities provide steady payments linked to underlying indices such as the S&P 500. FIAs are generally protected against principal loss, unlike index funds. In a market downturn, you will not suffer large losses. This is the case because you will be able to choose an external index to link your FIA to but not purchase stocks directly. This provides you with the opportunity to earn interest in your FIA. At the same time, you won’t lose any money you put into fixed index annuities.
Crediting Method
Another advantage of FIA’s is that you can choose your crediting method. If you have an annuity, your insurer determines how much index interest you will get based on some rules and timeframes. It is possible to choose to have credit applied annually or monthly. Or, some crediting methods use the average value over a given time period, while others base their interest on the differences in rates. Another shows the changes in the index since the FIA contract start date. One year later, the interest is calculated based on that change.
Financial Protection
A significant benefit is the ability to keep your money safe. You will not lose money regardless of what happens to the index. According to law, insurers must protect your money. This means you can benefit when your index does well. The interest rate is set by insurers at a reasonable rate of return**. In this way, your retirement savings will not be affected by market fluctuations. Having the assurance that they won’t outlive their retirement income is reassuring to many retirees.
What is the Potential Growth of Fixed Index Annuities?
To begin with, let’s learn how annuity rates are determined. Start by aligning your annuity with at least one index. Our team at GPS Retirement can help you with this process. There are several options for interest rates when you use different indexes. The insurance companies will then use a crediting method to track the performance of your selected index(es). The policy provider sets the interest rate at the end of each year.
Whenever the rate exceeds a certain point, you will receive index interest earnings. Your money will be protected if the market goes on a downward trend. Situations vary from one to another. Every individual will therefore choose their annuity differently. During your meeting with our team, we review all of these terms and make sure they are clear. We also offer seminars where you can learn more about the specifics of a fixed index annuity. Your retirement decisions can have a lasting impact on your life. The more information you gather, the better.
Factors That Influence Potential Interest Rates
Indexed life insurance can benefit your retirement strategy in a number of ways.
Fixed index annuities may earn a maximum rate of interest in certain instances. A cap typically lasts for one month or one year. If your selected index exceeds the cap, the index rate does not apply.
In some fixed index annuities, the participation rate is calculated after the cap. A percentage of the increase in the index sets your rate, not the full increase.
In some annuities, interest is calculated using a spread. The index deducts a percentage of interest as time passes. Let us say that the annuity spread increases by 4% and the index increases by 9%. If that were the case, the annuity contract would receive a credit of 5% indexed interest.
Contact us at GPS Retirement for more information on crediting methods! Feel free to reach out to our team if you have any questions or if you need any additional information.
