See how the benefits of a fixed index annuity work together to keep retirement income planning on track. We look at six top fixed index annuity benefits: principal protection, tax deferral, growth opportunities, liquidity, guaranteed income and beneficiary payments.
In a relay race, the strength of the team outweighs the abilities of a single athlete. For each leg of the race, a runner plies their abilities to benefit the next and position them for success. By leveraging a combination of skills, the group outperforms the individual. As a result, the world record for the 4×100-meter sprint relay is more than six seconds faster than the individual 400-meter dash.
A sound retirement income plan is like a relay race: benefits working in concert help position you for success through each leg of the run up to and past the retirement finish line. As part of a comprehensive strategy, fixed index annuities offer a combination of benefits that can help build, secure and sustain retirement income.
Below, we highlight six key fixed index annuity benefits that help fund each leg of the run up to and through retirement.
1. Principal protection is a fixed index annuity benefit, helping secure long-term stability.
A fixed index annuityOpens a New Window. is an insurance product designed to ensure retirement income. Funds contributed to a fixed index annuity can never be lost due to market volatility.
This can be an especially vital benefit for many Americans who are facing their golden years with trepidation about their savings. A 2018 Index Annuity Leadership Council (IALC) study found 71 percent of today’s older workforce’s top concern in retirement is principal protection.1As part of a comprehensive strategy, a fixed index annuity can go a long way in protecting those hard-earned dollars.
2. Tax deferred growth potential from a fixed index annuity is a great opportunity to help build up a revenue source.
Along with protection from index decreases, most fixed index annuities also help shield money from annual taxation on interest, as long as funds remain in the annuity. Instead, funds held in an annuity are generally taxed as ordinary income when withdrawn. This allows a nest egg to grow tax-deferred with compounding interest through the accumulation phase, further shoring up resources for when you choose to take an income.
Because a fixed index annuity offers the opportunity to earn interest on principal, on interest earned and taxes deferred, it offers a path to jump start retirement assets that may not be available with a non-tax deferred account. That can be a welcome hand up for the many Americans; according to data released by the IALC in 2017, 90 percent of Americans lack confidence in their retirement savingsOpens a New Window..2
3. Growth opportunities are a key appeal for those looking for increased asset potential without risk exposure.
In addition to protection of principal, any interest credited to a fixed index annuity is also protected. As an insurance product, a fixed index annuity is not directly invested in the market. Rather, interest is credited based on the performance of an external index (e.g., S&P 500®). Contract owners typically have the flexibility to choose among a variety of index-linked crediting strategies, many of which include a cap or participation rate. Once interest is credited, it can never be decreased due to market volatility.
4. Liquidity is an important benefit of the fixed index annuity’s long-term design.
Fixed index annuities offer a variety of liquidity options to allow the owner to access funds in an annuity. Many fixed index annuities allow the owner to withdraw up to 10 percent.*Many annuities also offer increased or full access to the contract value for qualified care needs.**
5. Guaranteed income with a fixed index annuity provides long-term income stability.
Following the accumulation period, income payments can begin. These payments can be taken as a lump-sum, fixed installments over a specified period (e.g. 20 years) or as guaranteed payments for the rest of the annuitant’s life.
A basic fixed index annuity typically does not have any associated mortality and expense fees, management fees or administrative fees, which are typically associated with variable annuities. Fixed index annuities are typically intended to be long-term investments, so there may be fees for withdrawing more than the allotted penalty-free amount.
Many contract owners elect to add optional riders to their fixed index annuity, such as a lifetime income benefit rider. A lifetime income benefit rider provides increased payout flexibility by allowing the owner to receive lifetime income payments during the annuity’s accumulation phase. Some riders come with no fee, and others come with a small annual fee.
6. Take care of loved ones by ensuring fixed index annuity funds are paid directly to a named beneficiary.
A fixed index annuity allows contract owners the opportunity to designate a beneficiary to receive a death benefit upon the owner’s death, instead of requiring funds be paid to the owner’s estate. This helps loved ones avoid the expense and time of probate. If a contract owner dies during the accumulation or distribution phase, the annuity guarantees direct payment to the named beneficiary. Depending on the contract, these payments may be in the form of a lump-sum, series of payments, or lifetime payments.
Reliable retirement benefits
By design, fixed index annuities aim to protect and help grow money over time in order to deliver a stream of reliable income payments. A product with a simple and transparent design can be an integral part of a retirement income strategy. Over the next 10 years, an entire baby boomer generationOpens a New Window. will reach retirement age. For those looking for safe money options, a fixed index annuity may be the right product at the right time to help fund retirement from start to finish.
1Indexed Annuity Leadership Council, “The State of America’s Workforce: The Reality of Retirement” 2018↩
2Index Annuity Leadership Council, “America is Incredibly Savings Insecure” 2017↩
*The annual free withdrawal amount available differs by insurance company and annuity product. Withdrawals made before age 59 1/2 may be subject to a 10% federal tax penalty. of the annuity’s value each year without a penalty, during the accumulation phase.↩
**Waiver of surrender charge features vary by insurance company and annuity product; some features may require the owner to pay a fee.↩
The content provided is for informational purposes only and does not constitute advice. For specific details on how this may apply to your personal situation contact your personal financial advisor or insurance agent for more details. American Equity contracts are only sold through independent agents. Please contact your state insurance department to see if there is an independent insurance agent in your area appointed to sell American Equity annuity contracts.
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