Investing in Fixed Equity Indexed Annuities
Fixed equity indexed annuities have become one of the latest investing choices in the last fifteen years. Built as an investing vehicle that can provide a greater return than a traditional fixed annuity, fixed equity indexed annuities are often a smart investing choice for individuals looking for income during their retirement periods.
Similar to a traditional annuity, a fixed equity indexed annuity requires that the investor deposit funds into the account for a specific amount of time. Throughout this time, the profits accumulated will be tax-deferred, allowing it to grow more and more each year. After the investment period is over, the annuity is typically distributed as a monthly cash check or the investor can decide to take the entire annuity out in one lump sum, invoking the severe penalties like capital gains tax and fees from the insurance company.
What makes the equity indexed annuity different from the traditional annuity? The interest is handled differently in an equity indexed annuity. The insurance company will buy an option from one of the stock markets and after a year, it will either cash the option and have the interest put into the annuity principal or it will let the option expire and not give any interest into the account. Since the market fluctuates over the course of time, the annuity can either gain or maintain its principal over time, although the investment cannot lose value throughout time, despite market fluctuations.
Equity indexed annuities have been known to average returns of 7% or better and when there are prosperous year, investors can enjoy large gains of 10 – 20% or more. However, it’s important to note that the lean times will affect the investment as well, similar to any investment vehicle for a retiree.
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For retirees looking for a way to protect their investment, equity indexed annuities can be a great way to safeguard against a rising and falling stock market. Although these annuities might not provide huge losses in one year, they will also not suffer the extreme losses that a poor year in the stock market can also hand any investor. For security and stability in the retirement years, an equity indexed annuity can be a safe bet in the treacherous world of retirement budgeting.
Learn more about how an equity indexed annuity can impact your retirement planning. Do your research and compare the rates and quotes from a variety of insurance companies to ensure you are getting the best return for your investment.
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