Wouldn’t it be nice to put some of your retirement savings into a vehicle that will preserve your principal without any market volatility?
The fixed indexed annuity is one such vehicle. It will keep your money safe while linking your interest earned to some popular indexes.
The most common index used is the S&P 500 index. It’s an American stock market index based on the market capitalization of 500 large companies having common stock listed on the NYSE or NASDAQ.
Like anything else, there are pros and cons to these retirement vehicles.
PROS
No upfront fees
No market volatility
Gains are locked in
Some upside potential
Guaranteed income for life options
CONS
Will not get stock market returns
Surrender fees
Fixed Indexed Annuities are used to transfer the risk of losing money to the insurance company. The longer they hold on to your money, known as the surrender period, the better rates of returns you may see.
These annuities have been designed to return 3% to 5%. They can return more or less, but never less than 0%.
They are great alternatives to CD, money market and traditional fixed annuities. And some people use these as an alternative to their bond portfolio.