Choosing the Best Fixed Indexed Annuity
Like anything else, your goals are what is most important. The point I made last week is that fixed indexed annuities have two purposes, accumulation or guaranteed income. Within each of those are several nuances that separate the favorable from the unfavorable. It is our job as agents to help you understand this and give you at the very least more than one option. This obligation is dropped a lot by other professionals who claim to simply offer you “their favorite” annuity. My preference doesn’t matter when it comes to your money. The only thing that matters to me is that you get what you want.
Regardless of your purpose for using a fixed indexed annuity, one thing we should all have in common is to stick with only the highest rated insurance companies. If protection of assets is important then don’t settle for anything of lower quality. Since that’s the point of using an annuity then it shouldn’t be hard to do and the good news is that you may not have to give up much or anything at all. I’ve been strict with this throughout my career and will continue to do so because it has helped me avoid two major issues when insurance companies got in trouble. This is an easy one so let’s move on to the other parameters you should consider.
Objective Number One: Protection and Growth
Fixed indexed annuities are a great place to put money that you want to keep safe from loss. It’s only an option so make sure to explore your other options first and disregard advice from those who claim this to be the best way without a comparison to the alternatives.
Surrender Period- Make sure it matches your objectives. Yes, there are more than just ten year options available and I’ve done podcasts on all of them. There’s a decent three year indexed annuity for anyone who wants to “try it out”, but you’ll get more benefits for taking a longer term. This includes higher growth potential and greater variety of index options.
Index Options- Some people like it simple and others don’t mind more variety. The more index options you have the harder it can be to decide what to use. Ask a lot of questions about the history of blended indexes and at a bare minimum you should have at least one pure equity option so there is no second guessing the yield when it comes out. Blended indexes have adjustments for volatility and interest rates that can affect the overall yield. It’s never a bad idea to stick with a basic index like the S&P 500, especially for the initial projections.
Bonuses- This can be a good thing in certain situations but you have to realize there’s a tradeoff. The free money at the beginning will give you less growth potential over time. With or without a bonus should average out about the same so you need a good reason for the initial boost. It can be used to get out of other annuities, others like the death benefit, and some just like the initial boost. Don’t ever use it to get additional benefits that should otherwise be included in a fixed indexed annuity anyway like a 10% free withdrawal. And beware of a vesting schedule that goes beyond the surrender term.
Free Withdrawals- How much liquidity do you need? I don’t sell anything that comes with less than a 10% free withdrawal. Some products reduce that to 5% so pay close attention to something that looks too good to be true. You will get higher growth potential will a smaller withdrawal but it comes at the cost of less access to your money. The free withdrawals can be used to supplement income, meet required minimum distributions, or to average out to other investments if you want to rebalance a portfolio. Stick with 10% and you won’t have to give up anything to get it.
Customer Service- This is something you won’t understand until you get there. It applies to the agent you choose and the company you buy the annuity from. For my clients this is more important to me because I try to handle all the service work, except for the really independent ones. Believe me, there are companies that are very difficult to work with.
Objective Number Two: Guaranteed Lifetime Income
We’ve covered this several times. Fixed indexed annuities often have the highest guaranteed lifetime income payouts, whether immediate or deferred. Make sure to ask your advisor if he has checked SPIAs and DIAs as well because there’s always a chance you can find a better payout. Anyone who gets a quote from me can guarantee I have checked both just to be sure. I want to make sure you get the best deal and that no one else can beat it. Most of the time the best deal is easy to find because you simply need to find the highest payout. But, a few other factors are also important depending on your situation.
First, we need to recall that there are two different types of guaranteed lifetime income, with or without a fee. If you pay a fee you get maximum guaranteed income and if you don’t want to pay a fee then the eventual income will depend on the performance of the contract. Be absolutely sure that a proposed contract is not showing you hypothetical numbers that are claimed to be guaranteed. To do this, request every page of the illustration. If the guaranteed income doesn’t match on both the guaranteed minimum and hypothetical scenarios then walk out the door. You are dealing with a dishonest person if they don’t clearly explain the difference. Let’s look at the major components that will apply to both types.
Guaranteed Lifetime Income- Forget about the bonus. It only affects the income amount and I’ve seen lots of people take a lower payout just because a specific contract has a bigger bonus. Stupid agents have no respect for your intellect and sell only the bonus without doing extra work to verify it. The bottom line is, how much income will it pay? Go with the highest payout. Fee-based contracts will have the biggest guarantee and you shift all the risk to the insurance company. Performance contracts where you don’t pay a fee will have a much lower guarantee and you carry some of the risk of what the payout will be in the future. Take the one you like but you have to look at both to fully understand the decision you made.
Growth Potential- This will tell you how much money remains in the account. It leads to what your beneficiaries will receive when you pass or how much money there is available if you want or need to get out of it. Income contracts are not built to grow as much as the growth contracts mentioned above so you shouldn’t expect it but some are better than others. Fee-based contracts have higher payouts and fees that drain the account more quickly. Performance-based contracts without a fee will come with more growth potential. Combine the likely lower payout with more growth and the lack of a fee, it stands to reason that this will produce a larger remainder.
Single vs Joint Payouts- It used to be the case that you had to decide when you bought the annuity whether you wanted a single or joint lifetime payout. In most cases now you can buy the contract and decide between single and joint when you elect the income payment to start. This offers tremendous flexibility for the contract owner, especially when the plan to start income is several years away. But, there are still contracts that make you choose when you buy it. This needs to be made clear before you commit to buying something. It’s common sense to understand a major financial decision.
This post ties together more than 20 individual podcasts so each of these points can be described in much more detail. That’s enough for many of you to throw up your hands and avoid searching for annuities because it may seem complicated. Just remember what I said. Establish your goals first and the rest is easy. You only have to look at a few of these. If you know exactly what you are trying to achieve then a half dozen or less of these episodes will give you all the answers you need to make a good decision. That might take an hour or two of your time. All the questions you’ll be able to ask will create a headache for the greedy agents so this will make it fun. Then all you need to find is the right person to show you the few products that meet your new stringent requirements. I hope you caught the hint. I sell annuities and I’m damn good at it.
Have a great weekend!
Bryan
Watch Episode 205: Choosing the Best Fixed Indexed Annuity
Download Episode 205: Choosing the Best Fixed Indexed Annuites on Apple Podcast
Last Updated on December 5, 2025 by Bryan Anderson
