Today's Top Ten Fixed Annuity Rates (MYGA)
Critics Get Blindsided by Fixed Index Annuity Growth
Because of fixed index annuities stock market indexing strategies, they can bring conservative investors very nice interest growth. Especially during a flat or down stock market; considerably better returns than CDs, bonds, or money market accounts. From the 1999 to 2010 many fixed index annuities have actually outperformed the indexes they were correlated with. However, they really aren’t designed to outperform the stock markets even though they do at times; they are designed to outperform the fixed markets such as bonds or banking instruments over the long term.
**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.
Principal protection and a chance to benefit from market gains make fixed index annuities quite attractive. During the accumulation phase of an FIA, you have the opportunity to benefit from stock market gains while your principal is protected against stock market losses. The annuity contract usually **guarantees you a minimum rate of interest on your purchase payments while the annuity is growing. The insurance company involved will credit you with either the minimum return stated in the contract or a return based on the performance of the linked index.
If you are skittish about stock market investing, you can potentially realize the benefits of stock market participation through this comparatively no-risk annuity. there is a small risk when the stock market loses money in that year you will not have a gain however you will not lose any principal or accumulation. The nice thing is that percentage gains are based on the anniversary reset. So if the market was down 25%, your crediting would start at the new market low and any percentage gains from that low point would be credited to your account up to a specified amount – usually half or more of the market gains for the new year with of loss to accumulation or principal. This works especially well with flat or declining markets over long periods of time.
Participation rates to note: Each FIA has a particular participation rate. The participation rate signifies the percentage of the invested assets within the annuity keyed to the linked index.
Let’s say you have an FIA linked to the S&P 500 and the participation rate is 60%. That means 60% of your annuity assets will raise with the index. If the S&P 500 gains 10% across a year, this means your annuity gives you a 6% return for the year (with typically no fees or administrative charges). Compare that 5-7% potential return to so many CDs and money market accounts which generate a pittance of interest.
Some FIAs measure an index’s gain on an annual basis, others over the entire term of the annuity. Sometimes there are ceilings on just how high a return you can realize. From time to time, participation rates may be reset by the insurance company. Occasionally, a margin or spread determines the index-linked interest rate instead of a participation rate. In this case, if your annuity gains 10% and the spread is 2.5%, your credited gain is 7.5%.
Tax-deferred growth, an income stream and often a death benefit. Most FIAs give you all the features of a fixed annuity; your earnings are not taxed, and when the distribution phase of your annuity starts, you can receive periodic (usually monthly) income payments. (Sometimes you can take the entire value of your annuity as a lump sum at the end of the contract term. It is your withdrawals that are taxed.) There is often a **guaranteed minimum death benefit payable to your beneficiary when you pass away. Key things to consider when choosing a fixed index annuity are:
- High independent ratings for safety concerns
- High interest crediting for growth
- Generous payouts for income
- More liquidity for emergency cash needs
- Shorter surrender periods or lower surrender penalties
- Additional benefits such as payouts for long term care, terminal illness and death benefits
- Flexible income riders that allow both lifetime income and the ability to pass any remaining account value to heirs
- More indexing options for higher growth potential
- Better indexing strategies for higher growth potential
- Higher cap rates, higher participation, higher averaging
- A larger bonus
- No or low annual fees
- Shorter vs. a longer reset to grow and protect accumulation
- High water mark vs. annual point-to-point
- Higher deferred growth of the income base
- Availability of the income base for a death benefit
- Joint survivor income **guarantees
There are many considerations that may be relative to your situation. What fixed index annuity works best for a 50-year-old single mother may be a total disaster for you and your wife. It is important to understand that no one fixed index annuity will give you everything you need or want. So, it is necessary to prioritize your needs. List all of your preferences and needs and then prioritize them on a scale of 1-10; 1 being the least concern and 10 being the greatest. Now start the process of comparing rates and options from top companies until you find the best overall fixed index annuity to address your unique situation. Utilizing a financial planner/educator can be of great value once you have familiarized yourself with the basic aspects of fixed index annuities.
Fixed Index Annuity Benefits
- Safety: Backed by highly rated state regulated insurers
- Tax Deferral: Tax-deferred growth
- Higher Return: Better interest rate potential than CDs and standard fixed annuities
- Life Insurance: Death payout **guarantees
- Liquidity: Flexible withdrawal privileges
- Unlimited Contributions, unlike IRAs and 401(k)s
- Inheritance: Pass money directly to heirs bypassing probate
- Lifetime Option: Income you can’t outlive (Annuitization or a Living Benefit Rider)
Fixed Annuity with Indexing Options
[FIA, Fixed Indexed Annuity
& EIA, Equity Indexed Annuities]
- Lump-sum or periodic contributions
- Invested in mostly high quality A-AAA bonds
- Annual interest crediting risk. Insurance company **guarantees principal
- Higher rate potential based on index performance (such as S&P 500, Dow Jones, NASDAQ, etc.)
- Moderate growth
- 4% to 8% interest crediting potential varies with index performance
- 3- to 14-year term normal
- Sophisticated, greater potential
- Guaranteed retirement income options
- Annual fees, minimal to none
Fixed Index Annuity Summary
All fixed index annuities are tax deferred with no income tax requirement until withdrawal. This is a definite advantage over many investments like CDs, mutual fund^s, stocks and bonds; when considering a long term retirement investment. A long term fixed index annuity acquisition may outperform CDs, bonds and treasuries. Reinvesting money that would otherwise be paid out in tax over an extended period of years is always an advantage. In addition, fixed index annuities have several benefits that can be important for retirement planning .
Question: Why is a fixed index annuity not regulated as a securities investment like a variable annuity#?
Answer: The insurance institution for fixed index annuities assumes all risk and **guarantees principal with at least a minimal rate of return, unlike variable annuities# where the insurance company transfers risk to the client.