What is an Annuity?

Fixed Index Annuities give you the opportunity to:

An annuity is a contract between you and an insurance company for the purpose of various retirement goals:

  • Tax-deferred accumulation
  • Principal protection
  • Guaranteed lifetime income you cannot outlive
  • Bequeathing assets to loved ones or organizations

What are the Benefits of Annuities?

While you’ve probably heard the term, you may not know that annuities have actually been around for centuries, helping hard-working people secure GUARANTEED lifetime income. This can be especially important for retirees, as studies show that most of us actually have a greater fear of running out of money than even death.

Benefits of annuities versus other types of investment opportunities include:

  • Annuities can provide perpetual income streams you cannot outlive.
  • Annuities are the only investments that can guarantee lifetime income.
  • Annuities allow you exposure to the markets (like the S&P 500) without downside risk. Click here to find out more about Index Annuities.

Is an Annuity Right for Me?

An annuity investment may be an excellent opportunity for:

  • Someone relatively healthy who wants to make sure they don’t run out of guaranteed lifetime income.
  • Someone who doesn’t want to have part or all of their retirement money exposed to market downside risk (especially as one gets older). Index Annuities allow you exposure to the markets and interest credited to your annuity based on market upsides, with zero downside risk (negative years are allocated as a zero return for the year).
  • Someone who wants to have a guaranteed minimum lifetime income level.
  • Someone who wants to leave a guaranteed minimum lifetime legacy amount to loved ones (or even a charity).
  • Someone who wants to have exposure to the markets and the potential higher returns they have to offer, including keeping up with inflation, but who wants to have the peace of mind that is never having to worry about market volatility and market downsides. Such volatility can be an additional worry as we age, with less time to make up for severe market downturns. Learn more about Index Annuities by clicking here*.
  • Someone who wants to have a vehicle for tax-deferred investments beyond what they are able to put away in qualified plans (such as IRA’s and 401k’s).

Annuity income can be paid out monthly, quarterly, annually, or even in a lump sum. Additionally, annuitants can decide if they want annuity income to begin immediately or be deferred for as long as they want, which can be many years into the future.

Fixed Index Annuities

Fixed Index Annuities (FIA) give you “best of both worlds.” They give you all the benefits of annuities such as principal protection, ability to receive a guaranteed lifetime income stream you cannot outlive, tax-deferral, etc., but they also allow you to have interest credited to your account based on the markets you allocate your funds into (like S&P 500, Nasdaq, etc.). However, unlike 401K’s, mutual funds, or stocks, you will not take any of the negative hit of a down market year. On the positive years you get a percentage of the upside move, but never any of the downside move (please see the chart below).

The two main differences:

1. In a down market year, your Fixed Index Annuity account balance actually stays the same. Your account value, as well as, all prior interest credited to your account are “locked-in” so that any future market downturns will not affect the value of your account. However, if you have invested in the markets through mutual funds, IRA’s or 401K’s, and the markets go down you could see your retirement savings take a major hit as well. At the age of 55, 60, 65 or 70, can you handle a 30% or 40% downturn in your retirement savings? You need your retirement money to live on now; not in 20 or 30 years. Can you handle taking that kind of hit emotionally?


2. The participation rate in an Index Annuity is a percentage of the move in the index that is credited to your account in a positive year. For example, say you have allocated the funds in your Fixed Index Annuity into the S&P 500 option, and the index goes up by 10% that year. If your Index Annuity offers a 60% participation rate then 6% interest is allocated to your account.

What is an Annuity?

You are probably asking yourself why you should give up that extra 4%. The reason it may be worthwhile, especially if you are close to or into your retirement is that you never take any of hits in a negative year. That means if the next year the S&P 500 is down 10%, you are allocated a zero for that year. If it is down 40%, you are still allocated a zero for that year. Also, all prior year interest credited to your account, and your account value are “locked-in.” Your account value will not go down because of down markets. The chart below gives a good example how allocating your funds into the S&P 500 strategy in a Fixed Index Annuity can compare to a mutual fund S&P 500.

You can see in the chart below that in the Fixed Index Annuity your balance never goes down because of down market years. Your account balance simply goes sideways. In the positive years in the FIA, you get percentage of the upside move. However, in the long term, because you never take any of the hits of a down market, you have the potential to earn a competitive return compared to the underlying index itself. All without having the worry of market exposure and volatility.