Fixed indexed annuities are a way to get exposure to the stock market while protecting your principal. They typically produce higher returns than other fixed-income investments but lower returns than direct equity investments. This type of annuity is particularly attractive for people in the preservation phase of retirement savings who want market participation with downside protection.
๐๐๐ฟ๐ฟ๐ฒ๐ป๐ ๐ ๐ฎ๐ฟ๐ธ๐ฒ๐ ๐๐ผ๐ป๐ฑ๐ถ๐๐ถ๐ผ๐ป๐ ๐ณ๐ผ๐ฟ ๐๐ป๐ฑ๐ฒ๐ ๐ฒ๐ฑ ๐๐ป๐ป๐๐ถ๐๐ถ๐ฒ๐
The annuity industry has been thriving in recent years due to high interest rates and an influx of retirees seeking protection from market downturns. However, the landscape is shifting as interest rates begin to decline in 2025. Despite this, annuity rates remain attractive with some fixed annuities offering rates above 6% in early 2025.
๐๐ฒ๐ ๐๐ฒ๐ป๐ฒ๐ณ๐ถ๐๐ ๐ผ๐ณ ๐๐ป๐ฑ๐ฒ๐ ๐ฒ๐ฑ ๐๐ป๐ป๐๐ถ๐๐ถ๐ฒ๐
๐ฃ๐ฟ๐ถ๐ป๐ฐ๐ถ๐ฝ๐ฎ๐น ๐ฃ๐ฟ๐ผ๐๐ฒ๐ฐ๐๐ถ๐ผ๐ป:
They provide 100% principal protection, which helps protect you from market downturns and preserves your retirement savings.
๐ง๐ฎ๐ -๐๐ฒ๐ณ๐ฒ๐ฟ๐ฟ๐ฒ๐ฑ ๐๐ฟ๐ผ๐๐๐ต:
They offer tax-deferred investment growth through returns tied to the performance of market indices, such as the S&P 500.
๐๐๐ฎ๐ฟ๐ฎ๐ป๐๐ฒ๐ฒ๐ฑ ๐๐ป๐ฐ๐ผ๐บ๐ฒ:
They can create a lifetime guaranteed income stream, which is a main reason many people add them to their retirement accounts.
๐ฅ๐ผ๐น๐น๐ผ๐๐ฒ๐ฟ ๐๐ผ๐ป๐๐๐ฒ๐:
Some annuities are currently offering significant bonuses of up to 47% for rolling over existing retirement funds, which can provide an immediate boost to your investment.
๐ฃ๐ผ๐๐ฒ๐ป๐๐ถ๐ฎ๐น ๐๐ฟ๐ฎ๐๐ฏ๐ฎ๐ฐ๐ธ๐
There are downsides to consider with annuities. Your money is tied up for a period of time, and if you need funds before age 59ยฝ, withdrawals are taxed as ordinary income and may incur a 10% federal penalty. There are also fees and commissions to consider, including potential surrender charges, mortality and expense risk fees, sales commissions, and administration fees.
๐๐ผ๐ ๐๐ผ ๐๐ต๐ผ๐ผ๐๐ฒ ๐๐ต๐ฒ ๐ฅ๐ถ๐ด๐ต๐ ๐๐ป๐ฑ๐ฒ๐ ๐ฒ๐ฑ ๐๐ป๐ป๐๐ถ๐๐
When selecting an indexed annuity, consider:
๐ข๐๐ฒ๐ฟ๐ฎ๐น๐น ๐ฅ๐ฒ๐๐ถ๐ฟ๐ฒ๐บ๐ฒ๐ป๐ ๐ฃ๐น๐ฎ๐ป ๐๐น๐ถ๐ด๐ป๐บ๐ฒ๐ป๐:
An annuity shouldn’t be your only source of retirement income but should complement other assets like Social Security, pensions, or investment accounts.
๐๐ป๐๐ฒ๐ฟ๐ฒ๐๐ ๐ฅ๐ฎ๐๐ฒ๐:
Compare interest rates, as a higher rate offers more growth potential for your investment.
๐ฃ๐ฟ๐ฒ๐บ๐ถ๐๐บ ๐๐ผ๐ป๐๐๐ฒ๐:
Consider whether you want a premium bonus, which can immediately boost your investment (but understand the terms and conditions).
๐๐ป๐ฐ๐ผ๐บ๐ฒ ๐ฆ๐๐ฟ๐ฒ๐ฎ๐บ:
Think about whether you want a lifetime income stream and ensure the income will adequately cover your needs.
๐ฆ๐ต๐ผ๐ฝ ๐๐ฟ๐ผ๐๐ป๐ฑ:
Compare options with various highly-rated insurance companies (look for at least an A- rating) to compare rates, similar to how you would when buying a car.
We recommend taking time to carefully evaluate these options and perhaps consulting with a financial advisor who specializes in annuity products to ensure any decision aligns with your overall retirement strategy.
Please let us know if you have any questions or would like to discuss any specific aspects of indexed annuities in more detail.
