Annuities Dirty Little Secret Number 1

By |2015-05-22T20:15:38+00:00August 10th, 2013|Annuities, Annuities 101|

You have probably seen this ad:

“Invest in an annuity; earn stock market returns with no exposure to losses!”

or

“Your annuity can only go up never down. Your funds are never at risk!”

How can your funds only increase? How can there be no risk? What type of annuity could this be?  The answer is Fixed Indexed Annuities (FIA)

Fixed Indexed Annuities tie your crediting returns to an outside source, normally the Standard and Poor’s Stock Index Fund.

How do they do that and how do they guarantee your funds against loss?  How can you funds increase but never be exposed to any risk or loss?

Your funds will never equal stock market returns and your returns will depend on your contract.  There may be fees and some expenses that must be paid first so a good estimate is approximately 40% to 70% of what the Index may return. Be informed and be sure these products are for you.

What is the real benefit of Fixed Indexed Annuities?  Your funds are fully guaranteed and are safe and secure.  Your Fixed Indexed Annuity can only increase. Fixed Indexed Annuities are best suited for people who want to protect their original principal and provide for an increase in funds linked to a major index.

Fixed Indexed Annuities vary by company and by state.  Always completely understand your annuity and make certain it fits your situation.  Make certain you understand the premature use charges associated with these products.

With a Fixed Indexed Annuity, your return is linked to the increase in one of several stock market indexes, such as the S&P 500. However, if the stock market goes down, you do not lose any of your money. Most Fixed Indexed Annuities have a guaranteed minimum rate of return which is typically 1-3%, even if the index you invested in goes down the entire time you are invested, you will still have the minimum guaranteed growth.

This video offers more information about how a FIA works: 

Tip: Understand Your Contract!

Equity Indexed Annuities are fixed annuities with an outside crediting source such as the S/P 500 Index. A trademark of McGraw-Hill Companies

Annuity contracts can be different so please consult your specific contract for crediting methods and expenses as well as contractual features.

About the Author:

Bill Broich
Bill Broich is a well-known annuity expert with over 30 years of experience. He has written hundreds of articles on annuities and other financial topics, and has been a featured commentator on TV, Radio and the Internet. To follow Bill's profile, click here.