Fixed index annuity
Principal protected when the market falls, index-linked interest when it rises.
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Caught between safety and growth for retirement money? A fixed index annuity protects the principal when markets fall, while crediting interest linked to an index such as the S&P 500 when they rise.
What an FIA does
It is an insurance product, not an investment: the aim is long-term growth or guaranteed lifetime income without market risk.
Principal protected
The strongest feature. However far the index falls, your deposit and the interest already credited are not lost. The floor is zero.
Room to grow
You are not invested in the market, so you carry none of its risk, but you get the chance at interest linked to how it performs.
Tax deferral
Tax on the gain waits until withdrawal, so the money that would have gone to tax keeps compounding.
Lifetime income option
Add an income rider and it produces a payment guaranteed for the rest of your life.
Often no ongoing fee
The base contract commonly carries no account fee. Costs appear only if you add riders.
Passes as you choose
It passes directly to your named beneficiary without probate, and some contracts pay an enhanced amount on death.
How the interest is worked out
The money is not in the market, but the interest is calculated from an index. The crucial point is that the return is not fixed. Methods differ by product; three are common.
Cap
A ceiling on the year. If the index rises 10% and the cap is 8%, you are credited 8%.
Participation rate
A share of the rise. Up 10% with a 70% participation rate credits 7%.
Spread
A slice off the top. Up 10% with a 2% spread credits 8%.
One number does not compare them
Caps, participation rates and spreads are different mechanisms and do not line up against each other. There are others too, such as monthly sum and performance trigger. Which one favors you depends on the product and the market.
The S&P 500® Index is a product of S&P Dow Jones Indices LLC; fixed index annuities are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones or S&P.
Annuities
Types of annuities Sorted three ways (when it pays, what it is for, how it invests) the right one becomes obvious.
Immediate annuity Place a lump sum and income can begin the following month, then continue for life.
Fixed-rate annuity (MYGA) A guaranteed rate above a bank CD, growing your retirement money without market exposure.
Buying guide Four steps: settle the goal, compare the carriers, read the conditions, then decide.
Guaranteed income for life The payment continues for life even if the account runs dry. A second Social Security, built for you.