An indexed annuity is a type of annuity product that offers potential returns based on the performance of a stock market index, like the S&P 500. Your investment is not directly in the stock market, but the annuity’s return is linked to the market’s performance, with certain guarantees. It provides a balance between potential growth (through market performance) and protection against market downturns.

A fixed annuity provides a guaranteed interest rate, offering stability and predictability. A variable annuity allows for investment in various market assets, which means higher risk and potential for higher returns. An indexed annuity sits in between; it offers the potential for higher returns than a fixed annuity (based on market performance) but with less risk than a variable annuity, due to certain guarantees.

Indexed annuities can have various fees, such as surrender charges, administrative fees, and rider charges if you opt for additional features like enhanced death benefits or income riders. It’s important to thoroughly understand these fees before purchasing an indexed annuity, as they can impact the overall return on your investment.

One of the appealing aspects of indexed annuities is the protection they offer against market downturns. Most indexed annuities provide a guaranteed minimum interest rate, which means that even if the stock market performs poorly, you won’t lose your principal. However, if the market performs negatively, you may receive minimal or no interest for that period.

Whether an indexed annuity is suitable for you depends on your financial situation, goals, risk tolerance, and investment timeline. They are generally best for individuals who are looking for a balance between risk and potential return, particularly those approaching retirement who want to protect their principal while still having growth potential. It’s essential to consult with a financial advisor to determine if an indexed annuity aligns with your overall financial strategy.