Annuities:
Indexed Interest Potential
Benefits of Annuity Income
Utilizing annuity income in retirement has various benefits. A fixed indexed annuity (FIA) may allow you to protect* the money you’ve worked so hard to save. It can also be used to earn a reasonable rate of return** based on the performance of a market index. The issuing insurance company protects your principal, so even if the stock market declines, you will not suffer losses. If the market is on an upward trend, however, you may see higher interest rates. Many retirees feel more confident in their retirement strategy when they have annuity income to rely on.
Crediting Method
When you purchase a fixed indexed annuity (FIA), you choose the index(es) used to calculate the annuity’s value. You also have the option of different crediting methods. For example, you could select an annual or monthly crediting method. Certain crediting methods employ an averaged value over time. In contrast, some methods base the annuity’s interest on the difference in rates over time. Alternatively, the crediting method may 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 is 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 is used to measure your interest rate, and is typically implemented after the cap but before the spread.
- And the spread is a percentage of interest deducted over a certain amount 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.