What is a Fixed Indexed Annuity?

Written By: Alex Hammersley, Financial Advisor

Fixed indexed annuities (FIAs) are insurance products that combine features of both fixed annuities and indexed investments. They are designed to provide individuals with the potential for higher returns than traditional fixed annuities, money market accounts, or certificates of deposit, while also offering protection against market downturns.

Here are some key features of fixed indexed annuities:

Principal Protection: FIAs offer a guarantee of principal, which means that your principal investment is protected from market losses. Even if the stock market or the index to which the annuity is linked performs poorly, your principal investment will not decrease.

Interest Credit Lock-In: Each year that interest is credited to your FIA, the interest is locked in and cannot be lost. The interest earned on your FIA cannot be taken away by future market downturns.

Participation in Market Gains: FIAs provide the opportunity to earn interest based on the performance of an underlying market index, such as the S&P 500 or Dow Jones Industrial Average. The interest credited to your annuity is typically calculated based on a participation rate or a cap rate, which determines how much of the index’s gains are credited to your account.

Crediting Methods: Fixed indexed annuities use various methods to calculate interest credits. The most common methods are annual point-to-point, monthly averaging, and daily averaging. These methods determine when and how gains or losses in the underlying index are calculated and credited to your annuity.

Surrender Period and Penalties: FIAs often have a surrender period, which is a specific period during which you are required to keep your money in the annuity. If you withdraw funds or surrender the annuity before the end of the surrender period, you may incur surrender charges or penalties.

Tax-Deferred Growth: Like other annuities, the growth in a fixed-indexed annuity is tax-deferred. This means that you don’t have to pay taxes on the interest earnings until you make withdrawals from the annuity. Withdrawals are generally subject to income tax unless your FIA is in a Roth Individual Retirement Account.

At Carlson, we love to educate our clients on investment products, strategies, and concepts. Give us a call at 844-CARLSON to learn more about Fixed Indexed Annuities. 

Say What?

Census data shows over 40 percent of baby boomers have no retirement savings. Savings rates do tend to rise with age, but only to a point. In the 55- to 64-year-old boomer age group, 58 percent say they own retirement accounts. Without any retirement accounts, most retirees will rely solely on Social Security. The average monthly Social Security check is around $1,800 but the average household spends more than $4,000 per month. 

This week in history:

1896 – Dow Jones Industrial Average was first published. The 12 original companies were: American Cotton Oil, American Sugar, American Tobacco, Chicago Gas, Distilling & Cattle Feeding, General Electric, Laclede Gas, National Lead, North American, Tennessee Coal & Iron, U.S. Leather, and United States Rubber.

1935 – Babe Ruth hit his 714th home run, a career home run record that would stand for almost 40 years. 

1977 – The very first Star Wars movie opened in theaters Memorial Day weekend, earning $461 million in U.S. ticket sales.  

2006 – Barry Bonds hit his 715th home run to pass Babe Ruth on the all-time great list.

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