Annuities and Index Interest Potential
Fixed Index Annuities Features
Benefits of Fixed Index Annuities
The key to a successful retirement is to adopt a flexible and long-term approach. Two major benefits of a fixed index annuity (FIA) are financial security and income stability.
Protection of Your Finances
FIA’s can generate income by tracking an underlying index like the S&P 500. Here’s how. They protect against principal loss even during a market downturn. The reason for this is that FIAs enable you to link them to an external index, but without buying stocks directly. However, on the flip side, if the market rises, you can earn interest on your FIA. Your principle is kept safe because insurance companies must protect your money by law. Also, insurers set the interest rate at a reasonable rate of return**. So, whatever the market does, your principle is safe with the opportunity to earn interest.
Crediting Method
You can also choose the crediting method with fixed index annuities. The insurer that you have an annuity contract with determines how much index interest you will get. They determine this based on certain rules and timeframes. Here are some of the most popular crediting methods.
- Monthly or annually
- Average value over a period of time
- Differences in rates in a given period
- Index value based on your annuity contract date.
What Are The
Factors That Influence Potential Interest Rates
You should consider the many factors influencing your indexed interest potential when choosing your annuity's crediting method.
In some cases, fixed index annuities may earn a maximum rate of interest. This cap typically lasts one month or one year. If your selected index exceeds the cap, then the index rate does not apply. Instead, a cap rate is applied.
Some fixed index annuities calculate participation rates after the cap. Your rate is determined by a percentage increase in the index and not the full increase.
Some annuities calculate interest using a spread. A percentage is deducted from the interest over time. For example, let’s assume that the annuity spread increases by 4% and the index increases by 9%. In that case, the annuity contract would receive a 5% interest credit.
Connect with us at Reliance Retirement Services for more information on fixed index annuities interest potential.
