3 Key Facts about Buffer Annuity

3 Key Facts about Buffer Annuity

Discover the top three essential facts about Buffer Annuities:

What is a Buffer Annuity?

Buffer annuities, also known as variable indexed annuities, blend features of both variable and indexed annuities. Here’s a brief overview of the distinctions:

• Variable Annuity:
  • Offers investment options in subaccounts (stocks, bonds, or mutual funds).
  • Gains are tax-deferred until withdrawals.
  • Potential loss if subaccounts perform poorly.
• Indexed Annuity:
  • Provides interest tied to S&P 500 growth.
  • Interest percentage capped (e.g., 5% or 6%).
  • No loss if the index experiences a loss.
• Buffer (Variable Indexed) Annuity:
  • Ties growth or loss to various investments (options contracts, REIT indexes, etc.).
  • Higher growth cap (usually 8% or 9%).
  • Potential loss mitigated by a “buffer” percentage.
  • Returns linked to a stock market index over a limited period.

How a Buffer Annuity Works

Overview:

• Allows investors to choose segments linked to market indexes.
• Examples include S&P 500, NASDAQ 100, and Russell 2000.

Configuration:

1. Choose an Index:
   • Select an index to track performance.
2. Set Segment Duration and Buffer:
   • Choose segment duration (1-6 years).
   • Select a segment buffer (e.g., -10%, -15%, etc.).
3. Protection and Limitations:
   • Segment buffer provides built-in protection against selected loss percentage.
   • Investor absorbs losses exceeding the buffer limit.
   • Earnings on the protected portion are subject to a cap.

Risk Considerations:

• While part of the account is insulated from market loss, earnings are capped.
• Exposure to market downturns; potential loss of principal.
• Important to review risk tolerance before investing.

Buffer Annuities and Indexed Annuities

• Downside Protection:
  • Buffer annuities provide partial protection against losses.
  • Example: A 10% buffer means the insurance company absorbs the first 10% of losses.
• Caps and Risks:
  • Caps (8-9%) limit credited interest.
  • Riskier than indexed annuities but offer higher caps.
  • Clients can participate more in market gains.
• Considerations:
  • Clients seeking income protection in retirement should weigh risks.
  • Buffer annuities focus on accumulation value, not stable retirement income.

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• Complete understanding allows us to manage your wealth effectively.

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