Fixed Indexed Annuities for Growth vs Guaranteed Income
It’s not uncommon for people to get terms mixed up when we start the process of evaluating annuity options. This takes time and diligence on your part to make sure you fully understand the products you use for retirement. Further complicating the process is opinions or advice from others. Not every advisor understands annuity products to the same degree that I do and it’s fair to say you might get only a piece of the information elsewhere. We are here every step of the way to make sure you learn everything necessary to make a good decision.
Twice this week I proposed fixed indexed annuities with a guaranteed income rider and both people really wanted a detailed explanation about how these are different from other products. Fixed indexed annuities can be used for a variety of reasons and in each of these cases the annuity was the top income payout on the market. With income cases the most important thing is the bottom line, or how much income you’ll get for a certain amount of money. Fixed indexed annuities regularly have the highest payouts so it makes sense to look at them, although you might see a lot of other details in the contract that seem confusing.
The basic premise of a fixed indexed annuity is market-linked growth with no loss protection on the downside. The purpose is for people who want to participate in the market but don’t want to risk losing money. Guaranteed income is available by way of an additional rider placed on the contract. That means whether growth is good or bad, income from the contract is guaranteed for life, meaning as long as you are alive. When I say joint life it means the guaranteed income amount will be paid if EITHER person is alive. Guaranteed income places all the risk on the insurance company so you never have to worry about income in retirement.
One example is a couple we are talking to right now who can get guaranteed income from a fixed indexed annuity that pays 7.5% of the initial premium for a joint life guarantee. It’s still an indexed annuity so the account will perform outside of that to give them a residual balance that declines over time as the guaranteed income is paid. There is a fee for the additional income rider so the income payment plus the fee will quickly deplete the account, usually in about 12-14 years. Because lifetime income payments are a liability to the insurance company, fixed indexed annuities with guaranteed income are built to grow very conservatively. Between the fee and conservative growth, the insurance company can project sufficient reserves to meet the guaranteed income amount.
On the other side of this is just a regular old fixed indexed annuity. It has protection from loss and growth tied to a market index. You can use this type of product to produce retirement income but it doesn’t have guaranteed income. There is no fee and growth potential is at least 50% higher than a product built to provide guaranteed income so you will have a residual balance that holds up much longer. If it grows at 5% and you take the same 7.5% withdrawal amount then the money will last for nearly 22 years. Needless to say the money may run out faster or last longer if the yield changes in one direction or the other. This is a better play for discretionary income or required minimum distributions when you don’t need the maximum payout. I introduced this more than 15 years ago for people who wanted more control over the outcome.
When I started looking at fixed indexed annuities, there were less than 150 on the market. Now there are more than 1000. It can seem like an insurmountable challenge to understand them all and that’s why you need help from someone who does understand them all. Those most competitive for growth versus those competitive for income are different products. Many salespeople have a favorite product or just a couple that they sell. Worse yet, some advisors are limited by what they are able to offer. Because we are able to look at and evaluate the entire market, we have become very effective at helping everyone find exactly what they need.
Fixed indexed annuities with guaranteed income are highly recommended for necessary spending needs in retirement. Fixed indexed annuities meant only for growth are a good option for discretionary spending, whether it be for vacations, home repairs, new cars, or anything else that doesn’t happen every day. We evaluate the validity of both for just about everyone who expresses interest in a secure retirement. Blending the two can give you both consistent income and control over distributions. Take your time figuring out what’s best for you and know that we’ll be here along the way to help make sense of it all.
Have a great weekend!
Bryan
Watch Episode 204: Fixed Indexed Annuities for Growth vs Guaranteed Income
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Last Updated on November 21, 2025 by Bryan Anderson
