Annuities
Indexed Interest Potential
Benefits of Annuity Income
Using annuity income in retirement has several advantages. A fixed indexed annuity (FIA) could help you protect* the money you’ve worked so hard to save. It could also be used to generate a reasonable rate of return** using indexed interest. The issuing insurance company protects your principal, so even if the stock market falls, you will not suffer losses. If the market is trending upward, however, interest rates may rise. Many retirees may feel more secure about their retirement strategy when they have annuity income to rely on.
Crediting Method
When you enter a fixed indexed annuity (FIA) contract, you select the index or indexes used to calculate the annuity’s value. You also have the option of using various crediting methods. For example, you could choose an annual or monthly crediting method. One crediting method uses an average value over time. In contrast, another uses rate differences over time. Alternatively, the crediting method might be based on the index front change since the contract’s first anniversary.
What Affects Interest Rates
It's important to take into account the various factors that may impact your FIA's interest rate. For example:
- The cap: a ceiling on the amount your FIA can earn during a certain period. If your chosen index increases over the cap, the cap is then used to calculate your interest rather than the index rate.
- The participation rate: used to measure your interest rate, and is typically implemented after the cap but before the spread.
- The spread: A percentage of interest deducted over a certain period of time. For example, if the spread is 5% and the index increases by 9%, the annuity contract would get a 4% indexed interest credit.
