Indexed Annuities

Stairway to Safety

Indexed annuities are another type of deferred annuity whose interested is credited to an index. Most use the S&P 500, Dow, or an international index to credit interest.

The selling point of these annuities is that they have zero market exposure.

When the market goes up you share in the gains up to a declared cap. When the market goes down you get a zero. “Zero is my Hero” is better than a negative statement. Also, all previous years gains are locked in and never go down.

Easy Example:

Picture a stairwell in your house or business. When the market goes up, you advance up a stair. When the market goes down, you stay on the same step and do not go down. Your gains are locked in and you will never see a negative on your yearly statement.
In addition to guarding your portfolio from market fluctuations, these products offer a minimum guarantee between 1-3%. Let’s say that you have a 5 year index annuity and the market is down 4 out of 5 years.

Chances are you will get the min. guarantee. At the end of each contact you either get the higher of the account value or the min. guarantee and most companies can provide you min. guarantee illustrations.

 

Pros

  • Share in market gains but none of the losses
  • Min. Guarantee 1-3%
  • No fees (unless you purchase a rider)
  • An alternative to buying a CD
  • Tax Deferral
  • 10% year liquidity

Cons

  • Limited growth (You share in the gains)
  • Can be Confusing
  • Surrender Charges may apply



Recommendation

We are huge believers in these annuities because you do not directly participate in the market but share in the upside gains but none of the losses. If you like to know your money will be there tomorrow, these annuities could be for you.


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