What is a Fixed Annuity?

A fixed annuity is one of the most commonly sold, yet most complicated annuities. Buyers can safely invest their money into a fixed annuity as the insurance company assumed the majority of the risks. Typically, you can’t lose value in a fixed annuity; the money you put in is going to come back to you.

This is unlike a variable annuity, where the investor assumes the risk according to the fluctuation of the market.

What is a Fixed Index Annuity?

A fixed index annuity is tied into the S&P 500 index or another index. As the S&P goes up, your account value goes up. One thing to remember is that it is generally not dollar for dollar as the value increases.

Items That Can Limit the Amount of Growth In Your Account:

Cap rates:
The max % your account can go up in a given timeframe.
Participation rates:
To get your return, you multiple the participation rate by what the index did in a given amount of time. For example, if the index did 8% and your participation rate was 50%, you would get a 4% return.
Spreads:
This is generally a % that gets taken off of your overall return, so if you have a 2% spread and the index returned 8%, your return would be 6%.

There are other items that can limit your growth in a fixed index annuity, and companies can use as many items as they want to limit your return. So, needless to say, these annuities can become really complicated really fast.

Why Buy a Fixed Annuity?

Fixed annuities can be used for growth in certain situations, but they are really for a fixed amount of money that you want to make sure you don’t lose.

Sometimes it can be used when interest rates are low as a bond replacement strategy in your overall financial picture.

The most important thing about annuities: it’s not all or nothing. It’s a portion of your portfolio, a piece to the puzzle.

What Type of Annuity is Right for You?

If you have any questions about annuities, to find out which annuity is right for you, or to learn more about financial planning, contact Kevin Walker of Great Lakes Properties and Investments today!