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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

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Annuity Rates

It seems as though there would be a simple explanation for such a plain term as ‘annuity rates’. You’ll find, however, that depending on the type of product you are considering, several different rates may apply.

There are many annuity rates to consider that all contribute to the performance of a contract. It’s important to know what to expect with a major financial commitment so an analysis of each of these rates is needed to determine what is appropriate to your situation.

This section will give you a great idea of what to look for when comparing annuity rates among different contracts. Each type of annuity contract is listed below with a list of rates appropriate for each. Follow the link to the product of your choice for a more in-depth explanation of what those rates mean.

Fixed Annuity Rates

Fixed Annuities are among the simpler contracts to understand, but still, there are a variety of rates to consider.  We have a full page on Fixed Annuities and explanations, where you will encounter:

  • Multi-Year Guarantee Rate
  • Current Rate
  • Renewal Rate
  • Guaranteed Minimum Rate
  • Bailout Rate
  • Bonus Rate
  • Yield To Maturity

Immediate Annuity Rates

Immediate Annuities have the fewest moving parts of any annuity- it’s primarily a payout rate, determined by you age, and the current marketplace.  Click to learn more detail about Immediate Annuities and understand the following terms:

  • Discount Rate
  • Mortality Credit
  • Payout Rate

Fixed Index Annuity Rates

Fixed Index Annuities have considerably more moving parts, and unfortunately, the actuarial complexity turns many potential investors away from these fundamentally sound and safe contracts.  Please explore our in depth analysis of fixed index annuities, and do not hesitate to Contact Us if you want a thorough analysis and the right annuity for your needs.

  • Declared Fixed Rate
  • Participation Rate
  • Cap Rate
  • Guaranteed Income Growth Rate
  • Payout Rate
  • Death Benefit Rate

Variable Annuity Rates

Variable annuities by their nature are, well, variable, based on the underlying investments that you select.  However you will likely see a few terms when investigating variable annuities:

  • Fixed Rate
  • Death Benefit
  • Guaranteed Income Growth Rate
  • Payout Rate

Secondary Market Annuity Rates

Secondary Market annuities offer higher rates of appreciation and return than most other annuities, for the simple reason that they are sold at a discount from face value.  With these annuities you will see various definitions, such as:

  • Immediate Income
  • Discount Rate
  • Deferred Income
  • Growth Rate
  • Discount Rate
  • Future Lump Sum Rates
  • Growth Rate

Summary:

There are a lot of different rates to understand. It’s definitely not something that can be explained in a sound bite. If you haven’t gone through the individual product pages to learn how each type of contract works, this might be a good time to do it. Also, feel free to take a look at the pros and cons of each type of annuity to see which one most appeals to you.

If you have already done all that and have a firm grasp on what each type of annuity contract is intended to do, then by all means visit the page that most interests you. Follow the links above to a separate page for each. If something just doesn’t seem to come together for you, please contact an expert now to get answers to all your questions.

Tax Deferred Annuities

A Tax Deferred Annuity is one of few retirement investments that offer tax deferred compounding of investment gains.  CD’s and Treasury Bonds are do not- they are taxed every year.

Tax Deferred Annuities offer these advantages, and are popular savings and investment plans for individuals who want to save on a taxes for many years. With a tax deferred annuity, your investment grows and compounds.   Unlike a CD, your earnings are not taxed each year, leaving you with more capital, and greater earnings, year after year. Investors fund tax deferred annuities with a single lump sum (known as “single premium”), or installments (known as “flexible premium”).

The tax deferred annuity is safe, as an approved life insurance company is required to hold reserves at all times equal to the withdrawal value of the annuity contract. In addition, state law requires certain levels of surplus capital also be available for increased protection. For many, a tax deferred annuity makes up the cornerstone of a safety-first retirement plan. For individuals in retirement, the tax deferred annuity is useful to defer taxes prior to needing the dedicated stream of lifetime retirement income.

The Three Main Tax Deferred Annuities:

Fixed Annuity

Fixed Index Annuity

Secondary Market Annuities

For the fixed and fixed indexed annuity, your principal and a minimum rate of interest are guaranteed by the full faith and credit of the company issuing the annuity contract.   These annuities provide a higher rate of return over traditional CD and savings plan products, and come with many options you can customize depending on your retirement objectives and financial plans.

Secondary Market Annuities offer tax deferred, compounding yields higher than nearly all other types of annuities.  Like a fixed annuity, Secondary Market Annuities have a guaranteed fixed yield and term.  With deferred income SMA cases, income earned is only realized for tax purposes when it is paid to you.  Therefore, your purchase price accrues, compounds, and grows, all tax deferred.

There are many benefits to tax deferred annuities that we explore in detail throughout this site.  Be sure to sign up to get our Retirement Income The Right Way Report and learn more about the benefits of tax deferred annuities.