Fixed Indexed Annuities are selling like hotcakes but while they are a terrific insurance product we sometimes recommend as part of a balanced portfolio; buyers need to understand how interest is credited to manage expectations. FIAs are often referred to as a “safe money product” because they are backed by highly rated, state regulated insurance companies, offer tax deferred growth, provide income in retirement, and guarantee a death benefit. Retirees love FIAs! 

Although Fixed Indexed Annuities are affected by the market index, they are not a security which means your initial investment will be protected from market downturns. On the flip side, while your investment and earnings are protected from losses, FIA’s have a cap rate that puts a limit on potential earnings. Insurance companies use cap rates to manage risk in unexpected market increases. If the cap rate is 4% when the linked market index goes to 9%, the earnings for that term are 4%. Returns are also limited by participation. For example, if the annuity participation rate is 70% and the return is 10% the interest rate credited to the annuity would be 7%. (Total Return x Participation Rate = Interest Rate Credited) 

Fixed Indexed Annuities can be complex but offer lifetime earnings which makes them a great tool in retirement planning. If earning money at a guaranteed rate while being protected from market losses sounds appealing, FIAs are for you. Alloy Wealth Management educates and empowers clients to make informed decisions that help them achieve their financial and retirement goals. Call 800-689-3935 to speak with one of our financial advisors.