Index Annuities — Earn a higher rate when the market is up, protect yourself when it’s not
The best of both worlds- upside opportunity and downside protection.
As with other types of annuities, index annuities offer tax-deferred growth opportunities. If you withdraw your money early, you may have to pay significant penalties – both to the insurance company and to the IRS. Index annuities give you the option to convert your investment into an income stream at some future date.
Upside opportunity, downside protection
Index annuities are designed to offer two things many investors look for:
- Upside opportunity — Your annuity‘s interest rate is typically linked with the performance of a specific market index, like the S&P 500. When the index increases, the crediting rate will rise (up to the annuity’s cap rate1), giving you the opportunity to benefit from rising stock markets.
- Downside protection — When the linked index remains flat or decreases the crediting rate will decrease, or may even drop to zero, but your account value will never decrease. While an index annuity has the potential to earn more than a fixed annuity, it also has the potential to earn less.
Index annuities with income benefits
Wouldn’t it be great if you could get guaranteed income for life even if the markets go down, with the potential for increased income payments if the markets go up? That’s exactly what you get when you add an income benefits to an index annuity.
The income benefit or rider adds a second value to the annuity—an income value, which is independent of the accumulation value. The income value grows at a fixed rate and is used to determine a predictable income stream. If the contract is handled properly, income will continue even if the account value has been depleted. Keep in mind, this added benefit may come at an added cost. Be sure to read all information carefully before investing.
Ready to learn more?
If you are uncomfortable about investing directly in the markets, but would like to be able to benefit from good market performance, consider an index annuity. Call us today to learn more.
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1Cap rate: The cap rate is the annual maximum percentage increase allowed. Not all index annuities have a cap rate. Some index annuities may have a participation rate.
Withdrawals may be subject to Federal/State income tax and, if taken prior to age 59 1/2, an additional 10% Federal penalty tax. All distributions from qualified annuities may be taxable. State premium taxes may reduce the final value of your annuity. IRAs and other qualified plans already provide tax-deferral like that provided by an annuity. Additional features and benefits such as contract guarantees, death benefits and the ability to receive a lifetime income are contained within the annuity for a cost. Please be sure the features and costs of the annuity are right for you when considering the purchase of the annuity.
Methods by which interest is credited to an account may be complex and an indexed annuity may not be suitable for all investors.
Surrender charges and insurance-related costs may negatively impact investment returns.
Withdrawals are subject to income tax and withdrawals prior to age 59 ½ may be subject to a 10% tax penalty.
Guarantees, such as guaranteed income benefits, associated with annuities are subject to the claims-paying ability of the issuer.