Annuities
Indexed Interest Potential
Fixed Indexed
Annuity Income
There are many benefits to utilizing annuity income in retirement. With a fixed indexed annuity (or FIA) you can protect the money you’ve worked hard to save. Additionally, it can do this while earning indexed interest at a reasonable rate of return.**
But what does “indexed interest” mean? With an FIA, the issuing insurance company keeps your money safe. You will not lose principal in the event of a stock market drop. But, when the market is on the rise, your interest rate can potentially increase. For many retirees, this setup gives them more confidence in their retirement future.
Your Crediting Method
When you purchase an FIA, you have a choice of indexes to allocate to the annuity’s value. And, you may choose which crediting method is used. For example, you could choose a monthly crediting method, or an annual crediting method. Some methods use an average of value over a period of time. Another method, meanwhile, bases interest on the difference in rates over a specific period of time. Alternatively, the crediting method may be based on the change of the index front from the first-anniversary contract date.
What Affects
Interest Rates
It’s important to examine the different factors that impact the interest rate on your annuity. Features that may impact annuity income include:
- The cap is a ceiling on the amount your FIA can earn during a set time period. If your chosen index increase goes over the cap, the cap is instead used to calculate your interest.
- The participation rate is implemented after the cap but before a spread, and is used to measure your interest rate.
- A spread is a percentage fee that could be subtracted from the gain in the index linked to your annuity. For example, if the spread is 5% and the index increases by 9%, your annuity would get a credit of 4% indexed interest.
