Fixed Index Annuities
Your Guide to Balanced Growth with Principal Protection
When your goal for retirement savings is an option that balances growth potential with protection from market volatility, a Fixed Index Annuity (FIA) might be the solution. FIAs offer a chance to earn interest that is linked to a traditional stock market index (like S&P 500), while keeping your principal protected from any downside.
What Makes FIAs Different?
Principal Protection
Your initial investment is completely safe from market fluctuations. You’ll never lose money due to economic volatility.
Market-Related Earnings
Any earnings are tied to the performance of a selected market index but have certain limits like caps, participation rates, and spreads. This provides the option for more potential growth than traditional fixed annuities but with much less risk than traditional market investing.
Tax-Deferred Growth
Your money grows without annual tax obligations until you decide to make withdrawals, allowing for more efficient compounding over time.
Flexibility
With FIAs, you can add optional riders or choose annuitization which provides a predictable retirement paycheck along with returns from your investments.
How FIAs Work
You can either provide a lump sum or commit to a series of payments to an insurance company, and your invested value grows depending on a formula that is related to the market index’s performance (with contract-specific limits). If the selected index decreases in value, you would avoid any losses but you wouldn’t receive interest during those periods. At the end of the contract, you can have options on how you want to receive the interest: as a lump sum, withdraw funds (depending on terms), or convert it to a stream of guaranteed income.
Get personalized Fixed Index Annuity quotes.
Continued
Is a FIA Right for You?
FIAs tend to suit people who are:
Approaching Retirement
If you’re within 10-15 years of retirement, want to protect a portion of your investment from market volatility, and can weather short-term caps while benefiting from potential longer term market-linked gains.
Interested in Balancing Security with Growth
Those who want to not only earn interest linked to a trusted market index but also protection from losing principal.
Seeking Fixed Annuity Alternatives
People who prefer products with principal guarantees that exceed fixed annuity returns but with limited downside risk.
Important Considerations
Growth Limits
Returns are typically capped or can be reduced by participation rates and fees, so the gains may not be as great as if they were invested independently in the same index fund.
Limited Liquidity
Withdrawals may be limited and incur penalties if done early or beyond penalty-free amounts.
Insurance Company Risk
Guarantees depend on the issuing company’s financial position, unlike FDIC-insured products.
Current Market Environment
FIAs are an attractive option for inventors seeking controlled exposure to market gains with a protected principal, especially when the market is stable or rising. Rising and relatively high interest rates in the previous years have allowed insurers to offer better cap rates, higher guaranteed minimums, and more flexible crediting options.
Tax Considerations Made Simple
FIAs provide tax-deferred growth similar to other annuities, which means that taxes are only due upon withdrawal. Qualified purchases, (those made with retirement account funds) have regular income taxation on those withdrawals. Non-qualified purchases (made with after-tax money) are only taxed on the earnings.
How FIAs Compare to Alternatives
FIAs vs. Traditional Fixed Annuities
FIAs provide higher growth potential by linking it to an index’s performance, while fixed annuities give a set interest rate without any market exposure.
FIAs vs. CDs
FIAs offer tax deferral and a potential for higher returns overall. but there is less liquidity and FIAs are not FDIC insured.
Fixed Indexed Annuity
Fixed Annuity
Certificate of Deposit
Medium–high
Low–medium
Low
Yes, 100% guaranteed
Yes, 100% guaranteed
Yes, FDIC-insured
Limited, early withdrawal penalties
Limited, early withdrawal penalties
Limited until maturity
Low (principal is protected)
Very low
Very low
Tax-deferred growth
Tax-deferred growth
Tax-deferred growth
Yes, via optional Income Rider or annuitization
Optional, via annuitization
No
Making Your Decision
Before deciding on a Fixed Index Annuity, consider the timeline of your investment, your income needs, and your comfort with the complexity of the product and terms. If you are seeking growth beyond the traditional fixed rates with a built-in safety net for your investment, a FIA could be a great investment choice.
Key Questions to Ask Yourself
Do I understand the contract’s participation rates, caps, and fees?
Am I comfortable with capped growth versus full market exposure?
Can I commit the funds for the contract without needing the liquidity?
How does this fit with my other retirement savings strategies?
With FIAs, the most important piece is considering the guarantees and the limitations on growth and how this type of annuity meets your retirement income goals.
Have more questions? Let’s chat.
A live advisor is standing by to answer your questions.
Jeremiah Konger
Annuity Advisor
Protect Your Nest Egg with a Fixed Indexed Annuity
Get a personalized quote in minutes – no obligation.
View Rates