Fixed Index Annuities Reasons To Consider
June 21, 2023
Blueprint Income Team
Fixed Index Annuities – Reasons to Consider
Fixed index annuities, or more simply put FIA’s, can be a great accumulation product for pre and post retirees. FIA’s help individuals and families stay invested with the security of asset protection. Many different features exist in FIA contracts, and we hope to outline some of the pros and cons associated with a fixed index annuity.
Reasonable Growth with Downside Protection
Fixed Index annuities are a unique product that can provide clients with a portion of equity market returns without downside equity exposure. In times of lower interest rates, conservative investors can turn to products like an FIA to potentially achieve higher returns than what is being offered in a fixed rate contract or the fixed account of the FIA (if offered). Although FIA caps fluctuate with the prevailing interest rate environment, they will generally be higher than the interest rates credited to fixed annuities or FIA fixed accounts, thus providing upside growth potential. Keep in mind that a cap rate is not a contractual guarantee of a return but the max return you can achieve using that allocation. Cap rates and the interest rates credited to fixed accounts can fluctuate up or down each anniversary year. You can typically select a new option during each renewal period.
Flexibility of Investment Allocation
When buying a FIA an investment allocation is made at the start of the contract but can generally be updated every year on the policy anniversary. Some of the most common investment allocations are with the account whose crediting rates is based, in party, on a market index (like the S&P 500) and a fixed account. An FIA gives you the ability to place a dollar amount with index-linked account and capture a portion of any growth (up to a limit known as the cap. The advantage of this is you can participate in some of the upside of the market index but because because your principal is guaranteed, you avoid the downside in declining market years. Simply put, this annuity can produce a portion ofmarket like returns, but keeps assets protected from turmoil in the equity markets.
The fixed account works like a fixed annuity or MYGA. If the fixed account is selected, the rate is guaranteed for the policy year or as stated in the contract. Although the fixed accounts in FIA’s generally interest at a lower stated rate than a MYGA, it still provides guaranteed growth when paired with an allocation whose crediting rate is based on a market index.
One of the benefits of an FIA is the ability to have asset protection with no fees. The baseline FIA contract provides for all the investment allocations and fixed account with no fees, however optional riders can have fees connected to them and should be considered before adding them to a contract. Riders could be available for features such as living benefit riders, enhanced death benefit riders, along with disability and nursing home waivers. Blueprint Income’s annuity experts can be your trusted resource to learn move about options riders and features.
Riders for Income and other Financial Needs
Various riders exist for FIA contracts that can help add benefits and customization to a contract to better suit your needs. One common rider can provide an individual with lifetime income without annuitization of a contractor for a deferral period where the benefit base will accrue at a guaranteed interest rate to create a higher income stream later in life. Often this deferral period can last 15 years and will have different withdrawal percentages depending on when the first withdrawal is taken. It’s very important when dealing with riders and features that you understand and fees and product features before purchasing the annuity. Blueprint Income is here to help with any rider questions and inquiries you may have.
A few additional riders that are commonly offered are disability waivers, nursing home confinement, and enhanced death benefit Riders. Many additional riders and features could exist, and a Blueprint Income annuity expert can help you understand the different terms and riders available in each contract.
Is a Fixed Index Annuity right for me?
Fixed Index Annuity contracts can be a great investment for someone who takes a conservative approach to investing and strives to eliminate downside exposure. An FIA can be a great tool in times of suppressed interest rates as it gives all or a portion of your assets upside tied to a market index such as the S&P 500. Liquidity can also be available in the form of an annual free withdrawal, or by using an income rider to guarantee an income stream for life. Beneficiaries are also protected as a death benefit of the account value is passed to any beneficiaries upon death.
Blueprint Income Team
We are a team of finance, insurance, and actuarial professionals working to make it easier for everyone to achieve a steady and comfortable retirement. We write about annuities (the good and the bad) and provide strategies to help Americans prepare for retirement.