Insights + Resources

Fixed Index Annuities

Aug 18, 2021

Dropping money in a piggy bank
What are they? How do they work?

What is a fixed index annuity? Don’t let the investment jargon put you off, Fixed Index Annuities are simpler than they sound. A Fixed Index Annuity is a tax-favored accumulation product issued by an insurance company. However, unlike fixed deferred interest rate annuities, a Fixed Index Annuity’s annual growth is tied to a market index like the Standard & Poor’s 500 rather than an interest rate.

How do they Work?

A Fixed Index Annuity can be funded with either a large, one-time sum or regular payments over time. It may be attractive to those looking for an alternate retirement vehicle. That’s because certain index annuities are subject to rate floors and caps. In other words, an index annuity can’t exceed or fall below a predefined return level, even if the underlying market index performs outside of set parameters.

How is this possible? The insurance company that issues the annuity bears the risk of a potential stock market decline. That’s right! With a fixed index annuity, your original deposit can be structured, so it will not decline if the index performs negatively.

Another potential benefit is how fixed index annuities grow over time. Their growth is tax deferred, meaning you don’t pay income taxes until you withdraw money from the annuity. But keep in mind, if you make withdrawals before you reach the age of 59 ½, you may be required to pay a 10% federal income tax penalty.

Fees & Expenses.

Sometimes, even the savviest investor could use a little guidance. After all, annuities can have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits.

Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contract.

So, if Fixed Index Annuities sound like something that may interest you, don’t hesitate to contact a financial planner soon. Who knows? This may just be the retirement vehicle you’ve been looking for.

For more insights and resources, be sure to sign up for our Weekly Market Commentary. Follow our YouTube channel where we regularly post our Epic Market Minute videos. Follow us on LinkedIn, or like us on Facebook. And as always, please don’t hesitate to reach out to a dedicated service professional at Epic Capital.

Tags:

More Insights

Sep 23, 2022

The Federal Open Market Committee (FOMC) increased the target rate by 75 basis points (bp) to a 3.25% upper bound and delivered a more pessimistic outlook in their published Summary of Economic Projections.

Sep 21, 2022

  You may have seen this statistic before or one resembling it: the average 65-year-old retiring couple can now expect to pay more than $250,000 in healthcare costs during the rest of their lives. In fact, Fidelity Investments now projects this cost at $285,000. The effort to prepare for these potential expenses is changing the … Continue reading “Healthcare Costs are Cutting into Retirement Preparations”

Sep 19, 2022

Investors are routinely warned about allowing emotion to influence their decisions. However, they are less routinely cautioned about their preconceptions and biases that may color their financial choices. In a battle between the facts & biases, our biases may win. If we acknowledge this tendency, we may be able to avoid some unexamined choices when … Continue reading “Do Our Emotion or Biases Affect Our Financial Choice”

Sep 16, 2022

At one point or another, you may realize capital gains, which is a taxable event. What can you do about them? You can do what some investors do – you could recognize investments with a loss and practice “tax-loss harvesting.”

Sep 14, 2022

Everyone loves a winner. If an investment is successful, most people naturally want to stick with it. But is that the best approach? It may sound counterintuitive, but it may be possible to have too much of a good thing. Over time, the performance of different investments can shift a portfolio’s intent as well as … Continue reading “Rebalancing Your Portfolio”

Insights + Resources >