Fixed Index Annuities. Detailed analysis and advice on fixed index annuities

Annuity Benefits


Annuity BenefitsWhen writing and speaking about annuities, I sometimes get caught up in products and contract specifics and need to zoom out to the big picture now and again.

Lets take a moment to look at the highest level view of annuities, where you really have just two types of benefits.  These are either Lifetime Income, or Fixed Term, solutions.

Fixed Term Options

Fixed term annuities, like Secondary Market Annuities,  Fixed Annuities, and Indexed Annuities, offer a known length of  term.  SMA’s and FA’s will also have a fixed appreciation rate.

Payouts from any of these products can either be lump sum, or income.  You can find fixed appreciation, fixed term lump sum payout annuities (SMA Lump Sums are highest yield), or you can find fixed appreciation, fixed term income streams that payout for a defined period of time.  These are SMA immediate and deferred income.

Fixed annuities and Indexed annuities also offer these defined lengths of time, and they offer additional benefits of some liquidity and surrender value, which SMA’s do not have.

With a fixed appreciation rate you have the ultimate in guarantees.  Put in X today, and you know your will get Y out in the future. Period.  This can be hugely rewarding and there are excellent yield opportunities in this avenue.

Lifetime Options:

Immediate Annuities simply trade assets for income- a one way ‘annuitization’ path.  This can be very lucrative, but is a hard mental leap to give up control of assets.

If you’re seeking to maintain some level of control over your assets, or want the potential to leave an inheritance, you will need to consider annuities that offer an investment account as well as a potential income account.

The best lifetime income with account value offering today is the Hybrid Annuity.  This is an index annuity with a lifetime income rider that can be turned on in the future.  This provides you with the potential for appreciation in the markets, no risk of loss or downside, and lifetime income protection, all in one product.

Give us a call today if any of these types of annuities and benefits suit your situation.  800-438-5121

Appreciation Rate:

In the fixed term section, you saw that many fixed term lump sum and fixed term income cases have a fixed appreciation rate. But what about the appreciation rate in other kinds of annuities?

If you are leaning towards lifetime income annuities that offer both the investment account and the income payout, the next big division to consider is the appreciation method that suits you.

Variable Annuities With Lifetime Income grow and decline with the markets.  These are NOT a great option for safety, and furthermore, many carriers have scaled back on variable annuity offerings in recent years.

By contrast, Fixed Index Annuities with Lifetime Income Riders grow based on a market index, such as the S+P 500, with no risk of loss.  These are sometimes known also as Hybrid Annuities.

It’s important to keep in mind here, however, that the primary benefit you are buying is the lifetime income.  The investment should have performance, but they are an added benefit above and beyond the primary benefit of the lifetime income insurance.


It’s critical to know the benefits you seek when considering annuities.  It’s easy to move from seminar to free lunch to product marketing flyer and get quite confused by specific product terms and riders and conditions.

Save yourself the confusion by letting us help you focus on your goals first.  Once we identify the types of annuities that accomplish your goals, you can buy with confidence.  We can help- give us a call.


New Index Annuity Calculator


Understanding  the benefits of an index annuity can be a daunting task for investors, but it’s totally worth the effort to become proficient and give these a serious look.

Index Annuities are very safe investments much like a fixed annuity, yet they have the possibility for gains linked to a market index.  And further, they can go up but not down due to the methods used to generate the market participation.

There are index annuities oriented towards appreciation, and there are index annuities geared towards the income rider.  Most people are familiar with index annuities in conjunction with income riders- these are often known as Hybrid Annuities.  But outside the guaranteed lifetime income rider component of Index Annuities lies the potential for a very safe appreciation vehicle.  

The nice calculator below is wonderful for illustrating the power of annual reset – this is an index annuity crediting method that builds account value annually (subject to participation and caps).  Use the start year to scroll through turbulent years and see how the annuity would perform.

Your comprehensive annuity investment guide: Annuities.

This calculator comes from another online resource so we can’t vouch for the complete accuracy of the historical data sets.  So please use this for a visual illustration and give us a call to select the best fixed index annuity with the highest crediting methods and most beneficial caps and participation.

Case Study- Is A Fixed Index Annuity The Right Tool For This Job?


This post is one of a series of questions and answers from our readers who are seeking the right annuity for their needs.

This came in via email:  This reader listed the following parameters for their desired annuity;

1. An annuity that keeps 100% of my principle investment for my children.

2. Pays the most income per month

3. Has the lowest fees.

4. Pays on 100% of my investment.

5. Protects my principle investment in a down market but increases my principle in an up market.

Great parameters, and this describes to a T the attractiveness of fixed index annuities, often marketed as a ‘hybrid annuity’.  The easy answer to this inquiry is to find the best Fixed Index Annuity for this individual, however that is not truly the best combination of Safety, Flexibility, and Profitability.  You can’t wrap all these goals into one annuity and expect each goal to be met perfectly.

Our answer to this question is below:


I appreciate the brevity and clarity of your question, unfortunately, the answer is long.  Here’s the summary: you can’t guarantee MAX principal/inheritance amounts AND take out Max income for life from the same annuity contract, and have both goals perform to their full potential.   One or the other of these objectives will suffer and your probability of failure goes up.  If you’re willing to let your future inheritance suffer, a Fixed Index Annuity may be just the ticket.

However, you CAN guarantee that BOTH goals are maximized with two annuity contracts- a deferred lump sum annuity paying your heirs, and an income annuity supporting you.  Separating your goals and using the right tools for each job locks in BOTH objectives, and does so at a lower cost, with lower fees, and with higher degree of certainty.

Here’s the full answer:

We believe that what makes the most sense is for you to use a deferred annuity for the inheritance, and have a separate income focused annuity for income purposes.  Trying to accomplish both goals with one hybrid annuity is likely to be disappointing.

What you asked for is a perfect description of the benefits that are used to market index annuities, however with the important caveat that if you are intent on absolutely preserving your investment base for inheritance, you will not be able to draw income in down years without invading principle.  Did you see our posts on ‘reverse dollar cost averaging”? This would be your plight.  You can’t guarantee principal AND take MAX income without some consequences.

A look at a Fixed Index Annuity with Lifetime Income rider illustration will show impressive growth in the ‘income base’ or ‘benefit base’, much lower projected growth in actual account value, then when income starts, you will see the account value dissipate in 10 years or so.  Income benefits are paid our of YOUR money first before you ride on the Insurance company’s shoulders, therefore, its’ quite likely there will be little or nothing left for inheritance.

Any scenario with a product whose performance may vary (variable annuity or index annuity) where you absolutely must have a certain income every month could box you in to spending principal.  In fact,  if you avail yourself of the guaranteed income benefits riders in index annuities, those income streams WILL erode your account value principal and put your inheritance goals in jeopardy.

There are always tradeoffs, but please consider the following alternative.

By using secondary market annuities, whose returns are fixed, and guaranteed, but which come in a variety of timelines, we could put together a winning solution.

We would use a deferred growth contract so that the future payout of the deferred contract equals or exceeds your total initial investment today.  Then, additionally, we would use an immediate income type contract which offers the highest potential payout for income purposes now.

This income could also be obtained with a plain immediate annuity if you prefer, which offers longevity insurance, or an index annuity with the GLWB type income benefits.  However, I must say our secondary market annuities almost always beat the index annuity assumptions and come with no fees, variables, or assumed future rates of return.

Now, what I’ll describe sets a period certain date when your inheritance dollars will be paid- and regardless of your passing.  If you want it to be contingent on your life, then we should look at life insurance to fill that need.  However I think you’ll see my proposed solution below is superior.


Basically what I’m thinking of is a scenario like this- let’s assume you have $600,000 cash today, and you wish your heirs to receive $600,000.  I’ll assume you are 60 and in great health, so conceivably could enjoy another 30 years, and you want the most income possible in that time period.

By placing roughly $100,000 of your portfolio on a long term, deferred, lump sum contract, you lock up and guarantee that you or your heirs will receive this windfall at a specific date in the future.  I’ll illustrate with this currently available secondary market annuity:
$95,552 investment today, pays $634,090 in one check on September 5th, 2039.  You can set this up today in an LLC, and gift the LLC membership to your heirs over time.  When the income comes in the future, it will pay to the LLC and it won’t matter if you are still living or not.

So- future inheritance, locked in and guaranteed today.

Now, for income….


Based on my hypothetical scenario, you still have $500,000 to work with to generate income.  As I said, you could look at an immediate annuity which will ensure against your longevity risk, or you can consider other period certain secondary annuities.  Or, you can consider an index annuity but take advantage of all the income benefits and bonuses and riders and disregard the account value concerns.

Because your took care of the inheritance with your long term deferred contract, you can focus solely on income now.  Depending on your age, a Secondary Annuity or an Immediate will likely pay more than an index or hybrid product.

A secondary annuity or an index annuity will also ensure additional inheritance to your heirs- an immediate annuity will not.

To place this $500,000 in secondary market annuities, you will end up with much higher guaranteed and certain payments, but it will be a variety of contracts and terms.  That’s just the nature of this marketplace.  This contract is illustrative of one we’d use in crafting your portfolio:


An immediate annuity on a 60 yr old male is appx $2900/ month income with a $500,000 premium, and depending on various factors.

The same premium in a fixed index annuity with no deferral period is appx $2200/ month.  Again, there are many varieties and contracts to chose from.

We would most likely get from $3500 to $4500 per month in Secondary market annuity cash flows over a 30 year certain period, from multiple carriers.  This will depend on availability and readiness to take action, however.

Now, as to the fees:


There are no costs or fees on the Secondary Market Annuities- the total cost is the purchase price.   Likewise, with an immediate annuity, there are no ongoing fees- you will simply trade your lump sum for a monthly lifetime check.

Bear in mind, too, we have nearly every annuity available nationally at our disposal- we don’t market one particular company or product, but rather, market our services putting the whole package together.  We’re not captive to one company.

Additionally, we won’t sell certain B rated, Index Annuity products that are marketed as ‘Hybrid Annuities’ with Swiss Army Knife lists of characteristics.  We don’t see the credit risk of the issuer as one worth taking.

As to the income component of your scenario, I need a few pieces of info such as your home state to illustrate further……

Would you like this sort of attention and analysis of your annuity questions and retirement goals? Contact Us today!

CD vs Annuity Idea


Okay, we all know there are a lot of people with money sitting in CD and money market accounts that are currently yielding very little interest. With the uncertainty in the global economy, I can certainly understand why many are choosing to play it safe for the time being. Are you one of those people?

Would you like an alternative with more potential? For the most part I stay away from general product recommendations without knowing your specific situation, but sometimes it helps to demonstrate how annuities can be used in the proper context. This one is very simple and we’ll consider a five year time frame with a particular fixed index annuity that is currently available in the market.

CD Vs Annuity: Comparison-

This product will pay a minimum guaranteed rate of 1.5% and also allows for up to 5% interest credit if the market performs well. Let’s assume you have a CD or money market fund paying a similar minimum interest rate, which could be more or less depending on your specifics.
With an initial premium of $100,000, this annuity will return $107,728 in the absolute worst-case scenario. If the stock market returns positive in at least one year, the total yield will be even higher. And who knows, maybe you’ll win more often than that.
Now your CD or money market may have the same guaranteed base, but I’ll bet it doesn’t allow for higher yields with positive stock market performance. Not to mention the fact that the annuity allows for tax deferred growth as compared to the annual taxation of the alternatives.
The best part is that the annuity is terminated after five years so you aren’t locked in to a lengthy contract. You should know by now that I’m a big proponent of flexibility and this product provides that with enough growth potential to make it worth a closer look.
If you are interested in this product issued by an A+ rated insurance company please call or email for more information so we can see if this is a match for you.
Take care and feel free to contact me at your convenience.
Bryan J. Anderson

Index Annuities And Variable Annuities In The News


This week’s focus remains on index annuities and variable annuities because of the rich mix of popularity and confusion regarding each of these products. I want you to have the most recent news and information on available products and strategies so you’re ready to make an informed decision when the time comes. In addition, you’ll find a reference to a very important article on federal spending that should remind you again as to why an annuity is likely to be the keystone financial vehicle in your retirement income plan. Let’s get started…

Are Variable Annuities Becoming More Efficient?

Leslie Scism writes in the Wall Street Journal about the move by investment managers to incorporate exchange traded funds (ETFs) into variable annuities. The main reason? ETFs are more cost effective and the result of this move would bring the overall cost of these products down, making them more attractive to potential investors. It doesn’t matter if the currently high fees are justified or not, but the fee structure of variable annuities has long been one of few valid complaints with the product. Lower fees and the resulting higher level of efficiency will make them better for consumers and also more popular with financial professionals. To read into the details of this transformation, click here for Leslie’s article.

What’s more, the article continues by showing further changes to variable annuities that is meant to not only make them more efficient but also more competitive with other products.

It seems to me that issuers of variable annuities are taking a page out of the fixed index handbook.

In the Annuity Report, the difference between these two products is clearly illustrated and it shows that index annuities provided better income guarantees because of a more stable underlying asset base.

With a variable annuity, the base account is exposed to the risks of the stock market. As such, companies have less control over future performance and must go light on the guarantees as a result. A stable asset base is the major advantage of index annuities to the benefit of the consumer and issuing company. How could variable annuities ever compete?

Well, this article describes a shift in investment strategies for the companies who manage variable annuity assets. In an attempt to protect the principle asset, management teams are working to implement indexing and hedging strategies that will limit downside losses in bear market while capitalizing on upswings during a bull market.

To me that sounds a lot like the value proposition of a fixed index annuity.

Why should you care about changes in the variable annuity landscape?

Variable annuities have achieved much greater reach in the retirement planning market. Index annuities are not as well understood but, by their nature, offer a better value proposition for the consumer. For clarification please refer to The Annuity Report for objective information on the difference between these two products.

My job is to present the information and give a clear interpretation of how these things will benefit you when it’s time to decide how you’ll choose to provide a source of guaranteed lifetime income in retirement.  When you are ready, I look forward to hearing from you.

Investment Firms Show Interest in Fixed Index Annuities

You know, maybe index annuities aren’t as bad as the financial press would have you believe. In fact, this article from Insurance News shows that Wall Street financial firms are working to offer their own line of fixed index annuities. Click here to read the article.

As the products have aged and proved value over the last decade or more, the changing popular opinion means investment firms will have to alter strategies in an attempt to retain assets under management. Yes, the demonizing will slow down as more and more firms embrace the use of these safe-asset products. It’s the classic “if you can’t beat ‘em, join ‘em” mentality.

This will likely result in the movement of many more investment and insurance companies into this market. How does that affect you? Over time there will be a better competitive environment that leads to more product offerings and better contractual benefits. The market will continue to grow along with available choices for consumers.

That’s the major advantage of Annuity Straight Talk. You have me to do all the heavy lifting in product selection and loads of quality information that allow you find the best product out there for your specific situation.

And there’s one more thing I’d like to share with you this week…

Senators Propose Rigid Spending Cap- Andrew Taylor (AP)

How will any necessary budget cuts affect your plans for retirement? Well, if you don’t live under a rock then you know we have a mounting fiscal crisis in this country.

This AP release talks about a major proposal to reign in federal spending via a serious of cuts that is meant to shave $8 Trillion out of the government budget over the next ten years. You might want to read that again. The primary targets of those cuts are Medicare and Social Security. I’m not making this up… read the AP release.

I don’t want to spend too much time talking about the looming insolvency of those programs, but maybe it’s time for a quick quiz:

When you retire, how much control should you have over your financial livelihood?

a.)    I want to cede all control to bankrupt government program whose administrators admit their own insolvency.


b.)    I want to take control and make my own decisions.

Hopefully the answer is clear. It’s time to take a step in the right direction and make an appointment now! I look forward to working with you.

Bryan J. Anderson

800.438.5121 [email protected]

Factual Analysis of Index Annuities


Fixed index annuities will eventually find their place in the retirement planning marketplace, although not without a lot of kicking and screaming from the financial press.

Let’s take a close look at some of the misleading information that explodes from seemingly reputable publications and a well-researched rebuttal from an insurance industry analyst.  If you read both with an open mind you should realize any annuity product can be of value to consumers if only placed in a well-designed retirement portfolio.

The negative article comes courtesy of Lisa Gibbs of Money Magazine and highlights a few cases of misappropriated index annuity contracts with the intention of casting a shadow over the entire industry.

It’s amazing to me that stocks and mutual funds weren’t similarly attacked when trillions of dollars in wealth vanished as a result of the market meltdown in 2008.  Of all the people I talk to every day, no one has mentioned they have to delay retirement because of an annuity underperforming.

Well, Sheryl Moore of came to the rescue in a thorough attempt to set the record straight.  Sheryl posted a 52 point counter argument to Lisa’s article that documents the many factual errors published by Money.

Which article do you think required more knowledge, information and insight?

There are two things you need to understand.  Annuities are good products that offer valuable benefits to consumers.  And, no specific product or strategy is right for every person.

Between the two viewpoints expressed in these articles, which level of diligence would you like an advisor to offer?

Every person approaching retirement deserves honest analysis rather than sensational opinions.

Please call or email for a fact-based second opinion of any annuity you are considering.

Bryan J. Anderson

800.438.5121 [email protected]

The Validity of Fixed Index Annuities


Since I always direct people to search for facts that support financial products and strategies, I recommend all members of Annuity Straight Talk take a look at this report published by the Wharton Financial Institutions center regarding fixed index annuities.

Fixed Index annuities have a place at the table in retirement income planning.  In the report found here, the authors offer evidence that shows fixed index annuities produce favorable returns in comparison to all other asset classes over the past decade or more.

These products are relatively new to the retirement market so it is useful to have some objective information to help decide whether it’s the right fit for you.

The real advantage to fixed index annuities is the fact that the account values don’t decline when the market drops.  And although positive returns are subject to maximum cap rates, the lower volatility makes the overall gains very competitive.

In addition, because of the more stable asset base, future income guarantees far outpace comparable variable annuities.

When you read this report, start with the abstract points listed at the beginning to get the basic conclusions of the report.  If you’ve ever questioned the validity of fixed index annuities, I suggest skimming the report for verification of the quality of this product type.

For a discussion about how fixed index annuities can help stabilize your retirement assets please learn more about this in the The Annuity Report by signing up below or to the right.  Or, explore these  pages on Fixed Index Annuities or these pages on their popular income- rider siblings, Hybrid Annuities.

Bryan J. Anderson

800.438.5121 [email protected]

Refer here for more on fixed index annuities

Fixed Index Annuities- Safety and Growth Amid Uncertainty


Where can one find the best value proposition in the annuity industry these days?  Fixed rates are very low and variable products don’t protect against market volatility and contractual guarantees can be expensive.

Let’s take a look at fixed index annuities for a moment, a product that offers upside growth potential with protection of principle.  John Rafferty of American General Life tackles the subject in a recent Insurance News Net blog.  Here is John’s article.

Since cap rates on fixed index annuities fall with interest rates, John offers some insight on how to choose the proper crediting method in order to maximize growth.

The way I see it, safety is of paramount concern in today’s economic environment.  Few pre-retirees can afford to risk valuable retirement assets and even fewer want to do so.

The value in fixed index contracts is clear… consistent protection and growth potential in addition to the highest levels of guaranteed future income available.

If you don’t have a pension waiting for you, consider fixed index annuities as a way to ensure a reliable income source in your retirement years.

For information on how these products work and availability in your state, contact me at your convenience via phone (800.438.5121).

Visit here for a refresher on fixed index annuities

Fixed Indexed Annuities vs. Alternate Investments


How do fixed indexed annuities stack up against other investment options?

This question and answer editorial in the Dallas Morning News points out the need for analytical inspection of investments in the proper context. CBA Share price has been capturing the interest of many investors these days, so it may be a good option to check out.

One main point left out is the additional benefit of tax deferral that is inherent in all annuity contracts.  If alternate investments are held outside of tax deferred retirements accounts, annuities will provide a significant account value advantage.

Always do your homework and choose an advisor who won’t overlook any of the benefits or disadvantages.

Increase Your Retirement Nest Egg Through Fixed Index Annuities


From an early age, we are taught to work hard, save money, and deposit our money  in a savings account. Savings go towards buying a house, education, or for our retirement.

We are also taught to scrimp and save and make deposits faithfully every month. When our savings reaches a threshold, say $5,000 or $10,000, we may then consider converting that amount to a CD for a higher rate of return than our savings account. While it will earn more money in a CD than in savings, you do have other vehicles that can earn you even more than a typical savings rate, and may also be tax deferred.

The Chapel Valley Commercial Landscaping are a viable alternative to traditional CDs or money market savings accounts. When you purchase an annuity you are buying a contract from an insurance company. The terms of the contract provide you a specified rate of return and your gains are tax deferred. The Federal government ensures your money is safe by enforcing  cash reserve levels on the carrier  to cover the annuity. States also have guarantee funds to safeguard your money.

All annuities offer returns based upon your premiums paid. But annuities come in many shapes and sizes. There are immediate annuities which offer immediate income payments. There are also deferred annuities which still earn returns, but in which you do not collect income payments until a future date. You may pay a one time premium for these or make yearly contributions, which is also known as a flexible premium annuity.

The most common annuity is a fixed deferred annuity and quite popular for funding college tuition or retirement income. This is because these annuities guarantee a specified rate of return for a specified time frame. This rate of return is usually better than any bank CD or money market savings account can offer. This product is more conservative than a fixed index annuity, which can garner higher rates of return.

While a fixed index annuity guarantees a base rate of return on your principal balance, the actual rate can vary.  Annuity funds are invested usually in a bond portfolio, and returns are based upon the performance of another stock market index such as the S&P 500 or the Dow Jones Industrial Average. Thus, if the stock market performs well, you share some of the gains. If the stock market does not perform well, you do not incur any losses. It’s really a win-win scenario for you, as you can experience some of the rewards without any risk to your money.

When you take into account a higher rate of return on your money, a risk free guarantee on your money, tax deferment and bonuses, you may well earn more on a fixed index annuity in a fraction of the time it would take you to earn it through an account with your savings bank.

Learn more about this on the The Annuity Report by signing up below or to the right.  Or, explore these  pages on Fixed Index Annuities or these pages on their popular income- rider siblings, Hybrid Annuities.

Fixed Indexed Annuity


The Fixed indexed annuity is a booming business. There are billions annually being converted into these annuities.

Fixed indexed annuities garner higher returns than a CD or money market account without giving up security. The Fixed Indexed Annuity is an annuity that allows for market participation without downside risk , and is quickly overshadowing CD’s, mutual funds and other stocks as a great safe place for people to invest their money.

How The Fixed Indexed Annuity Works

A fixed index annuity will provide at least 1-3% returns, compounded annually. This minimum guarantee lasts throughout the contract; however, earnings can exceed this rate.

Fixed indexed annuities are linked to the performance of another equity index like the S&P 500. The overall performance of the US stock market is represented by the S&P 500. If the market performs well, your  investment  will enjoy a percentage of the gains. If and when the market goes down however, you are sheltered from losses.

Fixed Indexed Annuities: Gains, But Not Losses?

Fixed index annuities sound too good to be true.  Well, they are real. When the market performs well, you earn a percentage of the gains subject to a cap. When the market goes down, you do not hold any of the risk and therefore do not lose any money. Every year, any earnings will be locked in at the anniversary index point. In fact, on particularly good years, a fixed index annuity can gain 2 or even 3 times the guaranteed interest rate and not lose any of those gains when the market subsides again.

Fixed Indexed Annuity: Tax Deferred Growth

The icing on the cake for fixed index annuities is that if all earnings are kept in the annuity they will grow tax deferred. You don’t even have income on a Fixed Index Annuity to pay taxes on until you take out the money.

While this product is for all ages, it is especially applicable to retirees.  Small business owners are using FIAs in their 401(k) and SEP-IRA retirement plans as well.

Learn more about this on the The Annuity Report by signing up below or to the right.  Or, explore these  pages on Fixed Index Annuities or these pages on their popular income- rider siblings, Hybrid Annuities.

Are Fixed Index Annuities a Good Option For Retirement Savings?


In today’s tough economic climate,  fixed index annuities may provide you with the security and confidence you are seeking for your retirement savings.

The ‘Fixed Index Annuity’ is also known sometimes as an ‘Equity Index Annuity’. Fixed indexed annuities came onto the market in 1995 and have been steadily gaining popularity. Insurance companies are writing these annuities with a minimum guaranteed return and tying the annuities into another stock market index, such as the S&P 500 or Dow Jones Industrial Average.

You can determine if a fixed index annuity it right for you by looking at your investment goals and time frame. Short term investors seeking maximum returns should shop elsewhere. These annuities are vehicles for long term investors seeking stable returns, not double digit yields. Also, if you like to constantly rebalance your holdings, you should probably not invest in an index annuity. The ideal candidate for an equity indexed annuity would be a long-term, conservative investor who is seeking a stable and steady return. Someone who wants to no risk to their principal but would like to realize higher returns than a CD or money market account, which are also tax-deferred. An equity indexed annuity is a valuable addition to reaching your retirement goals.

Some Contract Features of Fixed Index Annuities:

  • Guaranteed Minimum Rates of Return: Fixed Indexed annuities guarantee a minimum rate of return no matter how the market performs. This return is usually 3% and is credited to a portion of the account value during the contract term.
  • The Stock Index: Fixed Indexed Annuities interest calculations are tied in the performance of a stock price index, such as the S&P 500, without taking into account dividends and capital gains.
  • Participation Rate: The participation rate is set in the contract terms and determines how much the contract owner shares in the index increase. They participation rate percentage is multiplied by the index change percentage to determine what interest rate the contract owner will be credited. If the participation rate is 70%, the contract owner will enjoy 70% of the index change.
  • Caps: A cap is the opposite of the guaranteed minimum rate of return. In essence, an annuity cannot earn more interest than the cap states in a particular period.

One should also note that equity indexed annuities have early withdrawal penalties, or surrender fees. The surrender fees may decrease over the years, but check contract clauses for details on these fees as they can be quite expensive. Remember, these annuities are best for investing long-term, so it is best to only invest money you will not need for several years.

When selecting equity indexed annuities there are is array of components to take into account. Every company offers different products and every annuity has different contract terms. Terms that vary include participation rate, cap, surrender fees, annual reset, etc.

While you may have heard some negative comments about equity indexed annuities (AKA fixed index annuities), this is largely in part to unscrupulous or un-knowledgeable sales agents selling these products to consumers who do not know what they are buying into. Do your research, find a reputable agent with experience in the equity index annuity field and know what product best suits you and your retirement needs.

Find more about Fixed Index annuities in The Annuity Report .

Learn more about this on the The Annuity Report by signing up below or to the right.  Or, explore these  pages on Fixed Index Annuities or these pages on their popular income- rider siblings, Hybrid Annuities.

About The Fixed Indexed Annuity (AKA Equity Index Annuity)


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.

Straight Talk on Fixed Index Annuities


Straight Talk on Fixed Index Annuities

Few products generate as much confusion and controversy as fixed index annuities, both pro and con. We’re often asked if these products are any good.
Want the Straight Talk? Money managers dislike fixed index annuities because they lose management assets and many insurance agents simply don’t do a good enough job of explaining how the product really works. This is precisely why opinions about fixed index annuities are so polarizing. But that’s just what they are, opinions. Straight talk is based in fact and cannot be disproven!

Fixed Index Annuities Summarized:

Fixed index annuities are nothing more than fixed annuities with a different means of crediting interest to the account. Fundamentally, fixed index annuities link the appreciation rate of the annuity account balance to a stock market index. In addition, the principle balance is guaranteed so you can essentially make but never lose money. In return for guaranteed protection, the potential growth only works out to a portion of the overall index gain. The basics are simple but a few moving parts gum up the works and that’s where opponents attack.

Critics will call fixed index annuities a raw deal because policy owners are not given full market appreciation and dividends are not included in the interest crediting. If that were true it would seem that insurance companies are stealing gains from the consumer. Such a short-sighted analysis only shows that the claimant understands little of how index annuities work.

You see, because the assets are not directly invested in the market index, no one receives full appreciation and dividends, not even the insurance company. Assets are actually placed in the company’s general account consisting mostly of investment grade corporate bonds and further backed by large reserves that each company is required to hold. It’s a simple risk/reward calculation. If you want principle guarantees, don’t expect the same returns as you’d get in the open market.

Another common misperception is that all index annuities have long surrender schedules approaching 15 years. In reality, surrender terms for most index annuity contracts are no different than those of variable and fixed annuities, ranging from three to ten years. Before anyone criticizes any surrender period they should first acknowledge the basis for such restrictions. If an insurance company has to buy a long-term bond to back any specific product, the company will incur a loss if the contract is cancelled early due to selling bonds or other investment instruments under less than favorable conditions.

Truthfully, fixed index annuities have a solid value proposition in comparison to other investments, no matter the risk factor involved. I too was a major skeptic at first until I took the time to understand the product. Compared to other investment strategies like futures, derivatives, hedge funds and options, fixed index annuities are not at all complicated.

Now to what really matters… are fixed index annuities a good place to put money? All else matters little if the product can offer decent returns. It just so happens that in 2009 the Wharton Financial Institutions Center for Personal Finance completed a study comparing actual index annuities contracts to alternative portfolios of stocks and bonds. Click here to see what they found. The study showed that index annuities were able to produce respectable returns when the market was strong and limited losses during market downturns. Isn’t that exactly what they are supposed to do?
There are a few specific things that every consumer must understand before purchasing a fixed index annuity. Several of the pages on this site dig into the particulars so be sure to poke around and arm yourself with all the information you can before you call.

Most importantly, there are a couple of valuable reports available with a free subscription to Annuity Straight Talk. The Fixed Index Annuity Report is the most complete resource for understanding how the fixed index annuities work,  and the GLWB Report talks about guaranteed lifetime income riders that can be attached to various fixed index annuities for additional retirement income options.