Potential Indexed Interest
How a FIA may offer index interest potential
Fixed Index Annuity Rates
You might think that when something is “fixed,” that you can’t change it. While this may be true regarding the index interest potential of an FIA, you may also have lots of flexibility with this type of annuity. For example, there is a choice of which index (or multiple indexes) you’d like to select. Remember, a fixed index annuity is not a stock market investment. Instead, it is an insurance product that links with an external index in terms of potential index interest. Also, some annuitants (owners) may decide how much of their FIA might go to one index versus another.
When it comes to fixed index annuity rates, you may want to also consider crediting method. Here’s how it works. First, your insurance company lays out the rules regarding your particular FIA. For example, they may include things like timelines for when you might see them apply the potential index interest. If there is any during that time, you get your annuity credit. Then, you may be able to chose whether you get this credit annually, monthly, or via some other time frame.
Crediting methods may also vary in terms of how the interest calculation works. For instance, some fixed index annuity rates may use a value (average), looking at a certain time range. Or, the amount you get might be based on a difference between the rate at the start of a time period versus at the end of it. Also, you may see some FIAs where the change in the index is noted at the anniversary date of your contract.
Rule Number One
What’s rule number one? Don’t lose your money. While this may sound like a simple idea, it is not as easy as it seems. However, if the place you put your money is safe from any market losses, this rule becomes achievable. Insurance companies who offer potential fixed index annuity rates must also back up their claims. In other words, they have a claims-paying ability that secures your principal. With an FIA, you may see a potential increase in indexed interest when applicable. Yet, your principal will not go down. When your money stays safe, you can make plans for a comfortable retirement.
FIA doesn’t have “growth” in the same way some other retirement options do. However, potential indexed interest may apply to your policy, depending upon your FIA terms. First, your FIA has indexes that it links to. In fact, you may be able to choose which index(es) you would like. However, you don’t have to worry about making this choice on your own. Total Financial Solutions can help walk you through your options so you can make the choice you feel is best. Also, there are different choices when it comes to crediting method. Finally, the fixed index annuity rates that get added to your policy may vary as well.
Once the index rate hits a pre-set point, you may get a portion of that potential indexed interest. Yet, if the index drops, nothing happens to your principal. Other factors, such as caps, participation rates, and spreads, may also impact how much you get. Of course, each annuity and situation is different. So, be sure to consult us about any current insurance or annuity policies you have now. Want to learn more about how these FIA’s work? Attend one of our upcoming seminars or webinars.
3 Considerations with Potential Fixed Index Annuity Rates
Insurance carriers may set a maximum interest rate for your FIA. However, keep in mind that your principal remains safe when the index rates drop. Although you may not capture all the potential index interest increase, you also protect your principal from loss. Rates under the cap rate get applied up to the cap rate amount.
The idea here is you get some of the index increase, but not all of it. Again, the benefit of an FIA is your principal remains constant, even if the index drops. Yet, you can see some increase in potential index interest rate when the index is up. You can potentially see an increase in value, without losing your principal.
Also a way to control the total potential indexed interest on fixed index annuity rates. This number tells you, essentially, how much of the potential increase your annuity may capture.
Fixed index annuities can be a simple concept - if you seek the right guidance. Reach out to schedule an appointment to learn more.
Now or Later?
In addition to benefits you may decide to leave to loved ones, an FIA may provide income during retirement as well. Typically, there is a certain percentage of your money available for withdrawal each year. Of course, this withdrawal should happen after your accumulation phase in order to avoid penalty. But, some of your money may be accessible sooner in certain emergency circumstances. Also, some retirees may choose to hold off on any income as a way to have potential indexed interest applied to a larger account amount.
Your retirement should be all about your choices. Contact us today to learn more about insurance and annuities concepts that may help you make those choices.