So let’s get down to it.
What Is a Fixed Index Annuity?
The answer may surprise you.
The word “fixed” is in the term, so you might think that this type of annuity isn’t flexible. But, when you ask, “What is a fixed index annuity?”, the answer might surprise you. Fixed index annuities (FIA’s) are actually quite flexible and provide many options for retirees. For example, you may choose which index you’d like. Importantly, your FIA does not actually purchase stocks or funds. Instead, it uses an external index (or several of them). Based on the index or indexes chosen, an FIA’s growth may be linked to it. Additionally, FIA owners can sometimes choose how much of their annuity they want with certain indexes.
Another choice for FIA buyers is crediting method. Basically, the company issuing the annuity creates some rules and guidelines to calculate an index’s interest. If the calculation comes out above a certain point, you get paid on your annuity. If not, then you may not earn interest, but your principal stays safe. As the annuity owner, you can choose different timeframes for crediting method. For example, monthly or annually. Also, the way they create the interest calculation can vary, too. Some methods use an average, while others look at the differences in rates over a period of time. In addition, you may have an annuity contract that looks at the anniversary date of the contract to calculate earnings.
What is a
Fixed Index Annuity With Principal Protection
When you have a fixed index annuity, your money is secure. This is a great benefit, especially for those who are in or nearing retirement. So, no matter what happens with your index (or, in the stock market), your principal has protections. In fact, insurance companies must have “reserves”, by law, in order to keep your money safe. Therefore, when your index does well, you have the possibility of growth. Then, if the index doesn’t do well, you don’t lose your principal. Interest is set at a reasonable rate of return (over time.) And, if the market takes a dive, your retirement doesn’t go down with it. This offers confidence for many retirees who want to make sure they don’t outline their money.
You May Wonder
Can My FIA Grow?
First, let’s learn about how the interest calculation works with an FIA. You choose an index (or multiple indexes) to link with the annuity. There are lots of interest options from different types of indexes. (Don’t worry – you can have help in making this choice. Our team at Choules Financial can help you navigate your options.) Once you’ve chosen, the insurance companies watch how well the index(s) do. They use a crediting method to figure this out. At the end of the term, the provider of the policy (the insurance company) sets the interest rate.
If the rate is higher than a preset point, you get some interest on your money. However, if the index dropped, your annuity value does not dip. Instead, it has protection. Other details, like cap, spread, and participation rate are also at play. Everyone has a different situation. So, be sure to meet with us at Choules Financial so we can go over your specific details. Indeed, we want to you to have all the information you need to make the best choice for yourself. In addition, you can learn more about fixed index annuity interest by attending one of our educational sesssions.