The new generation of fixed index annuity products offer excellent guarantees with market downside protection, and they also have lower fees. Annuity FYI’s article “Fixed Index Annuities Getting a Fresh Look,” says that last year’s sales of $31.4 billion broke sales records for the second year in a row. Fixed indexed annuity products are very complex and while they are an excellent investment for many people, you definitely need to research the underlying index, the formula which credits interest, the guaranteed minimum return, the participation rate, the spread fee, any cap, bonus possibilities, and the type of indexing method that will be used.
A fixed index annuity is a hybrid of a traditional fixed annuity product. Investors are guaranteed that they won’t lose any of their original investment because they are guaranteed that their rate of return will always be above zero. What makes fixed indexed annuities different from fixed rate of return annuities is that the rate of return varies based on a specific equities market. You will usually have a guaranteed minimum interest rate that can increase based on the performance of the index on which the FIA is based. FIA’s are an investment somewhere in between a fixed annuity and a variable annuity. FINRA says that while you will have more risk and more potential return than a fixed annuity, you will have less risk and less potential return than a variable annuity.
The fixed index annuity is worth a look because the newest products have lower fees and better lifetime income guarantees than previous FIAs. You also get the tax-deferred growth that is so popular with all annuities, shorter surrender periods, walkaway options, choice of an index, and a waiver of annuitization. The Wharton school found that fixed index annuities have performed better than many alternative investments. They have been competitive with many of the most popular and safest investments and have even performed better than some variable annuities and mutual funds. FIA’s are best for investors nearing retirement who want to protect their money, especially after the past couple of market collapses.