Fixed Indexed Annuity 101: Why It Could Be the Right Strategy for You

​Are you making your final financial preparations for retirement? Are you comparing various tools to help you build a stable foundation? From IRAs to insurance to investment vehicles, you have a broad range of tools and products at your disposal.
 
An annuity is one such tool. Annuities are often used to generate income, minimize taxes, manage risk and more. There are several types of annuities, and each is used to achieve specific objectives.

One increasingly popular type of annuity is a fixed indexed annuity. These annuities are unique in the way they offer growth potential while also limiting downside risk. Fixed indexed annuities can also be used to create a guaranteed lifetime income stream. Below are a few common questions and answers about how to use a fixed indexed annuity to protect your financial stability in retirement:

How do funds grow inside a fixed indexed annuity?
A fixed indexed annuity is a deferred annuity, which means your funds inside the annuity have an opportunity to grow and accumulate before the contract is annuitized and converted into income. Deferred annuities are categorized based on the way the funds accumulate. There are fixed annuities, which pay interest. There are also variable annuities, in which growth comes from market returns. Variable annuities often have downside market risk.
 
Fixed indexed annuities offer the safety of a fixed annuity with some exposure to market growth potential. Your growth comes from interest payments. However, your interest rate is based on the performance of a market index. If the market performs well, you may receive more interest. If it performs poorly, your interest rate could be lower.
 
In most fixed indexed annuities, you don’t have downside market risk. Even if the index has a negative return, you won’t lose money. That’s because most fixed indexed annuities have what’s called a guaranteed minimum interest rate, which is the least amount of interest you can receive in any given period. In this way, a fixed indexed annuity can often serve as a protective tool against loss.

What are the fees for fixed indexed annuities?
Annuities are often perceived as high-cost financial tools. However, the cost of an annuity often depends on the specifics of the contract. Some annuities come with significant fees, while others may have minimal expenses.
 
Most annuities do have something called surrender charges. These are penalties that are paid if you surrender your contract or take a sizable withdrawal during a specified surrender period, usually the first few years after you open the policy. However, you only pay the surrender penalty in those instances.
 
Fixed annuities often have minimal fees or none at all. Some policies offer optional benefits and features that may provide greater protection but also come with increased cost. Make sure you understand the costs of your contract before moving forward.

How do I use a fixed indexed annuity to generate retirement income?
There are a few different ways to take income from a fixed indexed annuity. One is to annuitize the contract. When you annuitize a policy, its value is converted into an income stream that’s guaranteed by the insurance company. The amount of income is based on the value, your age and other factors.
 
Another option is to take systematic withdrawals. This may be preferable to annuitization, because withdrawals don’t require you to sacrifice your contract value. Some policies even have additional options that guarantee your withdrawals for the rest of your life.

Ready to learn more about whether a fixed indexed annuity is right for you? Let’s talk about it. Contact us today at Fenton Financial Services. We can help you analyze your needs and identify the right strategies. Let’s connect soon and start the conversation.


*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.

*Investors should consider the investment objectives, risks, charges and expenses of a variable annuity and its underlying investment options. The current prospectus and underlying prospectuses, which are contained in the same document, provide this and other important information. Please contact our Investment Professional or the issuing Company to obtain the prospectuses. Please read the prospectuses carefully before investing or sending money.

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
 
Annuities are insurance products backed by the claims-paying ability of the issuing company; they are not FDIC insured; are not obligations or deposits of, and are not guaranteed or underwritten by any bank, savings and loan or credit union or its affiliates; are unrelated to and not a condition of the provision or term of any banking service or activity
Guaranteed lifetime income available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged.  Annuities are long-term, tax-deferred vehicles designed for retirement and contain some limitations.
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