Equity Indexed Annuities
An equity indexed annuity, is also known as an indexed annuity contract, is another alternative to the two primary types of annuities, a fixed annuity and variable annuities.
Instead of offering the fixed investment return of a fixed annuity or the variable investment return of a variable annuity, the equity indexed annuity offers a little bit of both. Like a fixed annuity, there is a minimum crediting rate guaranteed by the insurer, and, like a variable annuity there is a component of the product’s investment return that is linked to a specific equity index allowing for gains tied to an index ( NASDAQ, DOW JONES, RUSSELL )
This is how the income is generated through rising with the correlated gains of a market or index in which it is tied to. Annuity providers will typically offer a choice of indexes or markets to choose from. A equity indexed annuity product will generally offers a higher return than fixed annuities, but a lower return than variable annuities. Indexed annuities are quite close to variable annuities however, without the risk of losses. Many of these will have a floor ( Limiting any losses while protecting principal investment). In exchange for downside protection in the event the related index declines significantly in value, via the minimum crediting method the floor retains the principal and possibly the gains. Participant may have additional fees over and above the cost of a fixed or variable annuity. In addition, there are fees to cancel the contract if done to early in the maturation process of the annuity.
And finally, this type of investment is often difficult for participants to understand, as the method of calculating the indexed return is complicated and varies by insurer—everyone is different. Indexed annuities are growing quickly in popularity due to the safe money factor and lack of losses when nearing retirement. When you are ready to learn more and need to have a better understanding of the myriad of safe retirement options available to you be sure to schedule a call with The 401Kman 877-775-0812.