How Do Indexed Annuities Work

As you look for the best avenues to achieve steady growth and income during retirement, there are certainly no lack of options. With the glut of choices for where to put your assets to work, a vigilant and discerning eye is necessary in order to develop the proper strategy for your endgame.

The classic term Buyer Beware is more relevant than ever when deciding where to put your money, with many unfortunate individuals either losing part or all of their savings due to a negligent and uninformed planning process.

Although you have many choices, the amount of good choices are limited, with only a select few providing the benefit of guaranteed income throughout your golden years, in addition to safety and the opportunity for growth.  

One particular financial vehicle that has proven its value for millions is the well-regarded Indexed Annuity. But before discussing the details of an indexed annuity, let’s go over what an Annuity actually is.

In its most basic sense, an Annuity is a contractual financial product that is designed to accept and grow funds from an individual, which then, upon annuitization, pays out a stream of payments to the individual as they age.

The primary value is that annuities offer earnings growth that is a reliable (and tax-deferred) means of securing a steady cash flow for an individual during their retirement years, while also alleviating fears of outliving one’s assets.

There are generally three types of annuities:

  • Fixed – An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal.
  • Variable – An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio
  • Indexed – A special class of annuities that yields returns on your contributions based on a specified equity-based index. This protects your principle from ever declining but has the opportunity for tremendous growth.

What Makes Indexed Annuities Different and How Do They Work?

Although fixed and variable annuities are more well known, it is Indexed Annuities that have gained in popularity recently due to their safe and effective characteristics. In an indexed annuity, the insurance company credits you with a return that is based on changes in an index, such as the S&P 500. Indexed annuity contracts also provide that the contract value will be no less than a specified minimum, regardless of the index performance.

This leads to the very telling fact that there has yet to be even ONE indexed annuity that has ever lost principal. It is hard to find financial products anywhere that can say that.

Indexed Annuities provide:

  • Tax-deferred growth of earnings
  • A higher upside potential for consumers in low interest rate environments (i.e. RIGHT NOW)
  • Guaranteed preservation of capital, even in a down market

So Indexed Annuities Are a Great Option, What Next?

The best course of action would be to align yourself with an asset management professional who has experience in annuities.  Having an expert resource to guide you through the process will prove to be invaluable and should allow you to get your complete financial house in order for retirement. The trusted and reputable advisors at Karlan Tucker & Associates are well versed in Indexed Annuities and have the track record to prove it.  Schedule your no-obligation appointment today to start realizing your retirement dreams.

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