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Fixed Indexed Annuities are explained using the basket approach. Fixed Indexed Annuities are to some considered Hybrid Annuity Products because they combine two already existing products into one universal investment tool. These types of annuities have evolved over the years and are continuing to gain in popularity with investment advisor, informed investors, and retirement planners that want to provide a safe zone in a portfolio. Not everyone believes in the principals and power that these types of annuities have but we do and just another reason to create a website to share our opinion.

One thing to consider when shopping for Fixed Indexed Annuities are the carrier ratings. It is extremely important to choose a knowledgable broker that has access to only the top carriers. Usually the top carriers offer the most flexible products that are meeting if not exceeding market demand for annuity products. You will have to do your own research as well as any investor would complete their due diligence for any investment. The time horizon for fixed indexed annuities are anywhere in the range of 7 years to 14 years. We see many clients that are close to retirement and just discovered the power of fixed indexed annuities and wished they had known about them sooner.

Compounding of interest does take time and fixed indexed annuities main power is the power of compounding of interest on interest. We like to refer to this as triple interest crediting. It is really a simple concept of earning interest on your principal, earning interest on that interest, and then earning interest on the money that you would have paid in taxes. So in essence that is earning triple interest on one single investment. Unlike other investments, once interest is credited to you account, it cannot go down due to market fluctuations. There is a ratcheting effect on the growth of your money that looks like steps going upwards again and again. I hope you understand the visualization I am trying to convey.

Back to fixed indexed annuities, there are two accounts within one annuity which we will consider two baskets. The first basket would be the fixed basket or fixed part of the annuity. In the fixed basket you made your deposit and the insurance company has agreed to pay a fixed interest rate on funds within that account. This interest rate does change from year to year and is usually at your contract anniversary. The second part of the fixed indexed annuity would be the indexed account or the second basket. Try to stay with me. The indexed basket is the part of the annuity that allows you the investor to allocate which indexes you allow the insurance company to invest in. You will not mirror the markets or the indexes, but will receive a cap rate or credited rate of return based on market performance of that allocated index. If the index allocation had a cap of 5% and the index performed at 7%, you would get the 5% interest credit and it would be locked in. I guess it is a trade off by allowing large insurance companies to invest your money and only pay you part of the profits.

Most investors have been burned, and I mean really burned bad. Almost to the point of never looking at the paper again to see what the markets are doing. We feel that if you allocate according to proper research, investment tolerance, and time horizon, you will see steady gains in your asset allocation to an indexed account of a fixed indexed annuity that will grow and compound and be there for you when you need it. So there is a fixed account and a indexed account that both earns interest so it will give a little more options to the investor besides a fixed annuity or even a myga annuity. A little more opportunity for growth is yours with a fixed indexed annuity, but you have to understand how the products work, and the insurance company vocabulary that describes each feature as they differ from carrier to carrier.

There there is the best feature of all that is optional with fixed indexed annuities and that is something called an income rider. With all annuities, there are payout options that you have at the end of the term or contract period and they are pretty standard across the board. But what is exiting is this income rider that in exchange for the cash value of your account inside the annuity, you the investor can elect to take lifetime income payments for as long as you live. If you live so long that the account is depleted, most carrier have provisions to keep paying you and even your spouse for as long as both of you live. Who would think that an insurance company could come up with a product similar to Social Security but keep paying you even after the country went bankrupt? Well they did and it is known as a fixed indexed annuity income rider.

These riders do come with a charge and should not be misunderstood about real interest and credited interest to this third basket or rider that gets attached to the product. Interest credits and real interest are different. Real interest is what is credited to the first basket that contains a fixed account and the indexed account. The rider account or basket will get an income interest credit that counts only towards future income, not real money. There are many new brokers that do not explain this properly and for me I have no clue why they don’t. It must be greed, or just plain stupidity but those people do not last long by selling a too good to be true product. They always get caught and leave a bad taste in investors mouth’s about annuities and what the true purpose of them really are.

Annuities and especially fixed indexed annuities have a purpose, and they are not a one size fits all product. There are many considerations in considering this investment and it would be wise to seek out many different product options. That about covers it and for more information about annuity income riders we hope you will visit our affiliate. The dream of lifetime income streams and the reality are totally different and the ones that plan, do achieve this dream but only with a plan.

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