Indexed Annuities
Indexed annuities can play an important role in your retirement planning. While a pension and Social Security may provide some retirement income, it may not be sufficient for the kind of retirement you want to have. Indexed annuities can help you save for retirement and provide you with additional income over the years ahead.
What Is a Indexed Annuity?
An indexed annuity is a contract that pays interest based on a market index like the S&P 500, offering a chance for higher yields than fixed annuities. While it provides the potential for gains when markets perform well, certain contract provisions limit the upside. Indexed annuities ensure the principal remains protected, offering a minimum return even during market downturns. This article explains how they work, focusing on participation rates and rate caps, crucial for maximizing your retirement income potential.
Indexed annuities offer interest based on a market index performance, providing higher potential yields than fixed annuities, but with limits like participation rates and caps.
Participation rates determine the percentage of index gains credited to the annuity, which can range from 25% to 100%, though typically between 80% and 90%.
Rate caps limit the maximum interest that can be credited to an annuity account in a given period, often ranging from 2% to 15%.
While indexed annuities offer market-linked growth potential, gains are restricted and may not keep pace with inflation, and early withdrawals can incur significant fees.
An indexed annuity guarantees principal protection and limits downside risk, but your chosen insurance company's stability is crucial for securing your funds.