According to “Today’s retirees remain focused on income for life” from NAPSI, fixed indexed annuities are becoming increasingly popular for their unique benefits. Indexed annuities protect your principal investment like other annuity products and also give you guaranteed interest no matter what happens in the markets. While the overall return may be lower than some other investments, many investors are willing to make that sacrifice in order to get the security offered by fixed indexed annuities. The insurance company that you buy your annuity from provides you with growth that is tax-deferred and gives you the option to receive your guaranteed payments for life. The interest you receive for indexed annuities is tied to one of the stock market indexes.
Historically the rates are higher so investors can protect themselves against inflation. Variable annuities are an alternative to fixed indexed annuities, but they carry more risk along with their potential for greater appreciation. Investors have to decide which type of risk is best for them. Indexed annuities offer safety and protection, but of course there is a cost for more security. The Wharton Financial Institutions Center found that the returns associated with indexed annuities were comparable to other portfolios, but offered the benefit of less risk. Annuities are definitely meant to be used for the long term and typically allow investors to withdraw around 5-10% yearly without any type of surrender fees or penalties.