Indexed Interest Potential
Benefits and Advantages of Fixed Indexed Annuities
A fixed indexed annuity, or FIA, may serve as a useful part of your overall retirement strategy. Here are some of the key benefits of FIAs:
FIAs provide steady payments based on the performance of an index or indexes, for example, the S&P 500. FIAs provide a degree of safety, yet still, allow for reasonable rates of return** over time. Unlike other financial vehicles, which put your money at risk in order to obtain high returns, an FIA may offer the “best of both worlds.”
Choice of Crediting Method
Another benefit of FIAs is the flexibility in regards to the crediting method. Your insurer determines how much indexed interest you will get, based on a few rules and factors. Furthermore, it’s possible to choose to have credit applied annually, or monthly. Some crediting methods use the average value over a certain period of time. Others, meanwhile, base their interest on the differences in rates. Yet another crediting method shows the changes in the index since the FIA contract’s start date, and determines the interest based on that change a year later.
Interest From Fixed Indexed Annuities
To start, let’s talk about how FIA interest rates are determined. First, your annuity is aligned with at least one index. We can help you with this process. When you use multiple indexes, there are several options for interest rates. The issuing insurance company will then use one of the previously mentioned crediting methods to track the performance of your index or indexes.
Whenever the rate exceeds a certain point, you will receive indexed interest earnings. Additionally, these earnings will remain protected* even if the index goes down. It’s important to remember that everyone has a different situation, and designs a different strategy around it. You have your own goals and needs for retirement. And we can help you find products to help meet them. Reach out to Freedom Dream Team. We can help you get informed on the benefits of fixed indexed annuities.
The following factors may have an impact on the interest rate of your FIA:
FIAs earn a maximum rate of interest, or CAP, in certain circumstances. A CAP typically lasts for a month or up to a year. If your selected index exceeds the CAP, then the interest rate doesn’t apply.
The participation rate is calculated after the CAP. Essentially, only a percentage of the increase in the index sets your rate, not the full increase.
With a spread, the index deducts a percentage of interest as time passes. As an example, let’s say that the annuity spread increases by 4%, and the index increases by 9%. In that case, the annuity would receive a 5% indexed interest credit.