Indexed annuities, also known as equity indexed annuities, allow your savings to grow in a tax-deferred manner. These annuities credit interest based on the performance of an external stock market index while protecting your principal from market losses. They offer more growth potential than a fixed annuity and less risk than a variable annuity.
Tax deferral
A fixed index annuity is a savings vehicle that allows you to earn interest that’s based on the performance of an external stock market index while protecting your principal against market loss. It also offers a number of other features, including guaranteed income for life and tax deferral.
During the accumulation phase, indexed annuities earn interest based on the upward movement of one or more reference stock market indices. However, if the index moves down for a specific crediting period, the annuity will not earn any interest.
Most indexed annuities offer the potential to capture positive index returns up to a predetermined cap while fully protecting your contract value from market losses. They may also provide built-in protection against inflation.
However, they tend to have high surrender charges, which can make them less liquid than other retirement products. Moreover, a significant portion of your withdrawals in retirement will be subject to ordinary income taxes. Withdrawals made prior to age 59 1/2 are subject to a 10% penalty.
Guaranteed income
Thrivent’s fixed index annuity provides lifetime income options, principal protection and a guaranteed interest allocation. It can be funded through a lump sum, a rollover from your retirement account or a series of payments. You can also choose from a variety of index allocations.
The index-linked interest credits your contract earns are based on positive changes in the index. However, if the index falls, your gains are limited. This is because most fixed indexed annuities have either a cap rate or a participation rate.
Both of these limits can lower your returns compared to the market. In addition, many fixed indexed annuities have fees that may detract from your overall return. To help you choose the right annuity for your needs, talk with a financial advisor.
They can consider your goals, time horizon and general investment philosophy to find the right fit for you. For more information, connect with a Thrivent financial advisor near you today.
Investing options
If you want your savings to grow based on stock market performance, an index-linked annuity may be right for you. However, it is important to understand the exact stipulations of annuity contracts before you buy one. For example, many annuities have “rate caps” that restrict the amount of interest you can earn if the index rises too much.
Most fixed index annuities offer a variety of income options. You can choose a lifetime payout, a set period of time or even a joint income for life. Some annuities also include a guaranteed death benefit, which allows you to pass on any remaining funds penalty-free to a beneficiary. A financial advisor can help you select the option that best suits your needs.
Fees
A fixed index annuity allows your savings to grow in a tax-deferred manner. It also offers principal protection and, if you choose, income for life. You can deposit a lump sum or take payments over time, and the annuity company invests your money in the market. It will then credit your account with returns based on how the market indexes perform.
These returns may be limited by participation rates, spreads and caps, which limit gains but provide some protection against losses. However, you should carefully study the contract details to understand how your returns will be limited.
UBS Financial Representatives can help you create a comprehensive retirement plan that takes into account all aspects of your life, from your retirement savings to your estate plans. We can help you select the best products to reach your goals. For more information, please speak with your Financial Advisor.
