Fixed indexed annuities are one option that may deliver better interest growth than a bank account — with less market risk than the stock market. Fixed indexed annuities credit interest in part based on changes to a market index, such as the Standard & Poor’s 500.

A fixed indexed annuity is not a registered security or stock market investment and does not directly participate in any stock or equity investments, or index.  All the while you are protected from market downturns and your money is not directly participating in the market or index.

Fixed Indexed Annuities are basically a certificate of deposit with some different options. In an effort to avoid boring long-winded terms, below is a chart outlining the difference between a traditional Bank CD and a Fixed-Indexed Annuity.

 

Certificate of Deposit Fixed-Index Annuity
Safety of Premium X X
Tax deferred growth X
Guaranteed Lifetime Income – option X
Potential Market-linked growth X
Premium Bonus – options X
Liquidity options X X
Pass to heir without probate X
Exempt from creditors in most states X

 

Both products are insured – Bank CDs are insured by the FDIC while a Fixed-Index Annuity is insured by an insurance company, which is what the FDIC is.

The risk profile of someone purchasing a “risk money product” like a mutual fund is far different that someone purchasing a “safe money product” such as a fixed or indexed annuity.

Suze Orman is quick to state that an annuity is the ONLY product which can guarantee American consumers an income that they cannot outlive.

Everyone who buys retirement income products should be aware of any limitations on liquidity in their contracts- annuities are no different.  In fact, annuities are available with surrender charges as short as one year or less. Annuities are some of the most flexible, liquid products available today. All annuity consumers are given access to 10% of their annuity’s value, annually, without being subject to surrender penalties (some even allow as much as 20% to be taken annually). In addition, 9 out of 10 annuities provide a waiver of the surrender charges, should the annuitant need access to their money in events such as nursing home confinement, terminal illness, disability, and even unemployment. Couple this with the fact these products pay the full account value to the beneficiary upon death, and I think you would have difficulty implying that these products are inflexible.

The most popular type of fixed annuity has an average street level commission of only 6.47%. Compare this to the consistent, generous commissions that are paid annually on mutual funds, and you see annuity commissions are very reasonable.

Some of the top benefits of an annuity:

1. No fixed or indexed annuity purchaser has lost a single dollar as a result of the market’s declines. Can you say the same for variable annuities? Stocks? Bonds? Mutual funds? NO.

2. All fixed and indexed annuities return the premiums paid plus interest at the end of the annuity.

3. Ability to defer taxes: you are not taxed on annuity, until you start withdrawing income.

4. Reduce tax burden: accumulate your retirement funds now at a [35%] tax bracket, and take income at retirement within a [15%] tax bracket.

5. Accumulate retirement income: annuities allow you to accumulate additional interest, above the premium you pay in. Plus, you accumulate interest on your interest, and interest on the money you would have paid in taxes. (Frequently referred to as “triple compounding.”)

6. Provide a death benefit to heirs: all fixed and indexed annuities pay the full account value to your beneficiaries upon death.

7. Access money when you need it: fixed and indexed annuities allow annual penalty-free withdrawals of the account value, typically at 10% of the annuity’s value (although some indexed annuities permit as much as 20% of the value to be taken without penalty). In addition, 9 out of 10 fixed and indexed annuities permit access to the annuity’s value without penalty, in the event of triggers such as nursing home confinement, terminal illness, disability, and even unemployment.

8. Get a boost on your retirement: many fixed and indexed annuities provide an up-front premium bonus, which can provide an instant boost on your annuity’s value. This can increase the annuity’s value in addition to helping with the accumulation on the contract.

Contact us at 813 964 7100 or 716 565 1300 for more info or if you have specific questions about fixed indexed annuities. You can email us at info@mintcofinancial.com

Mintco Financial is an independent financial advisory firm with fiduciary duty to all its clients.

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