Benefits of a Fixed Index Annuities (FIA)
A flexible and long-term strategy is key to a successful retirement. Fixed Index Annuities offer financial security as well as flexibility.
Keeping Your Finances Safe
FIAs can earn interest by tracking an underlying index such as the S&P 500. In addition, they offer protection against losses during market declines. Since FIAs are linked to an external index, stocks are not purchased directly. If, on the other hand, the market rises, you’ll be able to earn interest on your FIA. By law, insurance companies must protect your money. Additionally, insurers set the fixed index annuity rates or the interest rate at a reasonable rate of return**. Therefore, it does not matter what the market does. Your principal is protected and you have the opportunity to earn interest. It is reassuring for retirees to know that they will not outlive their retirement income.
Crediting Method
With a fixed index annuity, you can also select the crediting method. Once again, the insurer who issued your FIA contract determines the interest rate. They do so based on various rules and timeframes. These are some of the most common crediting methods.
- A monthly or annual payment
- The average value over a period of time
- Differences in rates over a given period
- The index value is based on the date of your annuity contract
The Factors That Affect Fixed Index Annuity Interest Rates
You should consider the factors that influence fixed index annuity rates when choosing your crediting method.
A fixed index annuity can earn a maximum interest rate in some cases. This CAP usually lasts one month or one year. Your selected index rate will not apply if it exceeds the CAP.
The participation rate for some fixed index annuities is calculated after the CAP. You will be charged based on a percentage increase in the index, not the full increase.
There are some fixed index annuities that calculate interest by using a spread. A percentage of interest is deducted over time. Assume that the annuity spread increases by 4% and the index increases by 9%. In this case, the annuity contract would receive a 5% interest credit.
Contact us to learn more about index interest potential.