Discover our most frequently asked questions about fixed indexed annuities (FIAs). Get the answers you need to help calculate your path to retirement.
What is an annuity?
In the most basic sense, an annuity is a contract between you and an insurance company that says you will pay for the annuity in either a single lump sum or multiple payments over time. In return, the insurance company promises to make payments from the annuity to you in a single or series of payments.
What is an FIA?
An FIA is a contract between you and an insurance company where the potential interest earned is linked to an external equity index. FIAs can provide a steady, guaranteed income stream.
What does “fixed” mean?
Fixed annuities, unlike variable annuities, offer a guaranteed minimum rate of return. You are paid a guaranteed fixed amount that doesn’t vary, regardless of market swing. The insurance company assumes the risk.
What does “indexed” mean?
The index, such as the S&P 500 or the Dow Jones, is used as a benchmark to credit interest. However, you do not actually invest in the stock market, offering protection against market volatility.
What makes an FIA different?
FIAs offer the opportunity for growth and a steady, guaranteed lifetime income stream, while protecting the principal from the uncertainty of market volatility. These benefits can help you moderate risk and reward, as you plan your financial future.
How is an FIA different from a variable annuity?
FIAs guarantee a fixed rate of return, regardless of market swing; whereas the rate of return for variable annuities depend on the stock, bond, or money market investment. The insurance company assumes the risk for FIAs and the consumer assumes the risk with variable annuities.
How does an FIA add balance to a retirement portfolio?
Diversifying your portfolio means balancing risk and growth. In fact, only one in four Americans understand that FIAs can add balance to your portfolio. That means protecting some of your money from the steep downsides of a volatile stock market. Of course, you can find risk protection in CDs, savings accounts, and the like. But, at current interest rates, your money won’t have much chance to grow. With FIA products, your principal can never decline from market loss, but it can grow with a rising index. And because they are insurance products, indexed annuities can offer a guaranteed income for your lifetime.
How does an FIA respond to the stock market?
An FIA uses a unique formula to calculate annual interest based on the performance of a stock, bond or commodity index. The index is used as a benchmark; however, you do not actually invest in it, offering balance and protection against the ups and downs in the market.
What are the potential earnings associated with an FIA?
Your interest earnings rate always remains somewhere between the interest rate floor and the cap. Earnings won’t rise above the cap, even if the index goes higher. Earnings never fall below zero, even if the index goes way down.
What are some of the reasons people choose an FIA?
Half of Americans say the number one thing they will miss in retirement is a steady paycheck. FIAs can provide a steady, guaranteed lifetime income stream. Additionally, FIAs provide balance and help you moderate risk in your financial plan. Different FIAs have different methods for helping the insurance company manage the risk, including participation rates and a spread or fee. While these methods can limit your earnings, they also help ensure earnings never fall below zero.
Is Social Security the only consistent source of income in retirement?
No, FIAs can provide a steady, guaranteed lifetime income stream.