This means they offer principal protection so you cannot lose money when the stock market crashes. FIAs also offer other benefits like Guaranteed Income For Life, Death Benefit, Diverse Asset Allocation, Liquidity and Safety.
Below, we highlight six key fixed index annuity benefits that help fund each leg of the run up to and through retirement.
A fixed index annuity is an insurance product designed to ensure retirement income. Funds contributed to a fixed index annuity can never be lost due to market volatility.
This can be an especially vital benefit for many Americans who are facing their golden years with trepidation about their savings. A 2018 Index Annuity Leadership Council (IALC) study found 71 percent of today’s older workforce’s top concern in retirement is principal protection.1As part of a comprehensive strategy, a fixed index annuity can go a long way in protecting those hard-earned dollars.
Along with protection from index decreases, most fixed index annuities also help shield money from annual taxation on interest, as long as funds remain in the annuity. Instead, funds held in an annuity are generally taxed as ordinary income when withdrawn. This allows a nest egg to grow tax-deferred with compounding interest through the accumulation phase, further shoring up resources for when you choose to take an income.
Because a fixed index annuity offers the opportunity to earn interest on principal, on interest earned and taxes deferred, it offers a path to jump start retirement assets that may not be available with a non-tax deferred account. That can be a welcome hand up for the many Americans; according to data released by the IALC in 2017, 90 percent of Americans lack confidence in their retirement savings.2
In addition to protection of principal, any interest credited to a fixed index annuity is also protected. As an insurance product, a fixed index annuity is not directly invested in the market. Rather, interest is credited based on the performance of an external index (e.g., S&P 500®). Contract owners typically have the flexibility to choose among a variety of index-linked crediting strategies, many of which include a cap or participation rate. Once interest is credited, it can never be decreased due to market volatility.
Fixed index annuities offer a variety of liquidity options to allow the owner to access funds in an annuity. Many fixed index annuities allow the owner to withdraw up to 10 percent.*Many annuities also offer increased or full access to the contract value for qualified care needs.**
Following the accumulation period, income payments can begin. These payments can be taken as a lump-sum, fixed installments over a specified period (e.g. 20 years) or as guaranteed payments for the rest of the annuitant’s life.
A basic fixed index annuity typically does not have any associated mortality and expense fees, management fees or administrative fees, which are typically associated with variable annuities. Fixed index annuities are typically intended to be long-term investments, so there may be fees for withdrawing more than the allotted penalty-free amount.
Many contract owners elect to add optional riders to their fixed index annuity, such as a lifetime income benefit rider. A lifetime income benefit rider provides increased payout flexibility by allowing the owner to receive lifetime income payments during the annuity’s accumulation phase. Some riders come with no fee, and others come with a small annual fee.
A fixed index annuity allows contract owners the opportunity to designate a beneficiary to receive a death benefit upon the owner’s death, instead of requiring funds be paid to the owner’s estate. This helps loved ones avoid the expense and time of probate. If a contract owner dies during the accumulation or distribution phase, the annuity guarantees direct payment to the named beneficiary. Depending on the contract, these payments may be in the form of a lump-sum, series of payments, or lifetime payments.
By design, fixed index annuities aim to protect and help grow money over time to deliver a stream of reliable income payments. A product with a simple and transparent design can be an integral part of a retirement income strategy. Over the next 10 years, an entire baby boomer generation will reach retirement age. For those looking for safe money options, a fixed index annuity may be the right product at the right time to help fund retirement from start to finish.
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Whether you're searching for Life Insurance, Annuities, IRA's and other retirement strategies, Health Insurance or 'ObamaCare', you must be well-informed and well-advised to get the most out of your premium dollars. An experienced and independent agent who represents multiple insurance carriers can make a huge difference in what you pay for coverage.
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