We all know by now that saving for retirement is imperative to enjoying our golden years. But what isn’t always clear is where to invest the money that we save. An annuity through an insurance company or financial institution can be a great vehicle for retirement savings as it offers a long-term contract that makes interest payments.
Be aware that the Fixed Indexed Annuity is also referred to as the Equity Indexed Annuity. These are the same products.
The fixed indexed annuity return is based upon the performance of a stock or other equity index. So if they perform well, your will reap the rewards, and vice versa if they do not perform well. As with any investment, to be fully vested and secure all the benefits, you should invest your money in an equity index annuity for at least 7 years.
Insurance companies offer fixed index annuities as another financial product. Basically, you are investing in the stock market risk free. Your principal is not at risk, and you can enjoy interest returns. However, the interest returns you receive will only be a percentage of the actual returns the stocks yield. This is the price you pay for enjoying the safety net on your principal.
This price pays the insurance companies for assuming the risk. The gain of the index or percentage of returns that the fixed index annuity yields is calculated by the participation rate. This rate is in the annuity contract’s finer details and is determined by the insurance company. A general rule of thumb is 70-90% in most contracts.
How Does a Fixed Indexed Annuity Work?
Fixed index annuities have become known as conservative investments. Their rise in popularity is in part due to the bullish market of the past. You can enjoy some of the rewards of rising stock markets, without the associated risks. Fixed index annuities provide a minimum interest rate and it will not go lower than the guaranteed minimum of the premium paid.
To fully realize the benefits of an fixed index annuity, early withdrawal is a no-no. Even withdrawing a portion of the balance will hinder your results. In addition to withdrawal penalties you would incur, equity index annuities will yield the best results long term. There are market fluctuations and investing wisely means riding those fluctuations out.
Insurance companies offer fixed index annuities to reinvest the paid premiums, usually into bonds. As they have already fixed in place the participation rate, they can keep anything they earn over and above this.
Fixed index annuities are tied into the performance of a stock market index , such as the Dow Jones Industrial Average of the S&P 500. They don’t, however, necessarily, fall into this preset category as this type of annuity also carries traits of a traditional insurance product and a security.
Traditional insurance products have guaranteed minimum returns. Securities are tied into the equity market. Depending on the particular equity index annuity it may or may not be classified as a security and probably is not registered with the SEC.
Find The Best Fixed Indexed Annuity
So then how does one know which fixed index annuity is best for oneself? The only way is to find out as much as you can about the equity index annuity before you decide.
Ask a lot of questions like which stock market index does the equity index annuity use? What participation rate is being offered to you? Are there any hidden charges in terms of any fees or deductions payable? You have to run through a number of equity index annuity offerings before making your decision.
You should do your research before selecting an equity index annuity. Determine what stock market index it is tied into, what the participation rate is, and any fees that are associated with the contract. Keep looking until you find the one you are comfortable with.
A fixed index annuity can help make your golden years not only enjoyable, but worry-free.