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Indexed Annuities

Indexed annuities offer upside potential tied to market index performance without downside risk from index losses. As a financial vehicle meant to create reliable retirement income, indexed annuities provide an effective means of growing savings while protecting hard-earned principal.

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Unlike fixed annuities which pay a declared rate of return, indexed annuities allow interest calculations on accumulated value to be “linked” to the performance of market indexes like the S&P 500. When the index has a positive year, a portion of those gains get credited to your indexed annuity account. This gives your retirement nest egg growth opportunities on par with broader economic trends.

Importantly, indexed annuity accounts do not actually participate in the stock market. They are fixed insurance products backed by the financial strength of highly-rated insurance carriers. The indexed linkage is only used as a means of determining interest rates. So your principal is 100% protected from any downside movement when the associated index declines in a given year. There is zero risk of losing money due to drops in the market.

This asymmetric interest calculation method is a primary benefit of indexed annuities. It allows participation in stock index returns up to a cap, without exposure to corresponding losses that can be experienced in the equities market. Although “real” investment returns may be higher in some years, indexed annuities provide market-linked growth without the sleepless nights.

As an insurance product, indexed annuities also provide built-in guarantees unlike investments exposed to the market. This includes assured lifetime income options, death benefit payouts to beneficiaries, and principal protection. Indexed annuities create reliability as opposed to the unpredictability investors must tolerate during retirement.

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Balancing Life Insurance and Indexed Annuities

For a comprehensive retirement plan, a balance between life insurance and indexed annuities can be beneficial. While life insurance provides a safety net for dependents and potential cash value benefits, indexed annuities offer a reliable income source and protection against market fluctuations. The choice between them, or the decision to incorporate both, depends on individual financial situations, risk tolerance, and retirement goals.

Both life insurance and indexed annuities can be integral parts of a well-rounded retirement plan. Life insurance offers protection and potential liquidity, while indexed annuities provide income stability and market-linked growth potential. When used in conjunction, these tools can help create a secure and flexible financial foundation for retirement. Consult with us to tailor these tools to your individual needs and objectives.

FAQ’s

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.
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.
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