Fixed annuities are a completely safe investment that offer unique advantages, especially during periods of high interest rates or if the buyer wants exposure to equity markets without all the risk of purchasing stocks, mutual funds or ETFs (exchange traded funds) outright.
By definition, a fixed index annuity is a contract between you and an insurance company. You pay the insurance company one or more purchase payments (“premium”). In exchange, you receive benefits that the insurance company guarantees through your annuity contract. Aside from a traditional death benefit, FIAs can provide a steady stream of retirement income, offer tax advantages and are protected against any downside loss.
Fixed index annuities have two phases:
The first is the accumulation phase, during which your annuity deposit can earn interest and grow tax-deferred.
The second phase begins when you start taking income; this is called the distribution phase. After a period of time specified by your contract, you may then receive the amount allowed by your FIA contract in a lump sum, over a set period of time, or as income for the rest of your life.
Why Purchase a Fixed Index Annuity or “FIA”?
Build for Your Retirement
Because FIAs allow you to earn interest based on an external index, fixed annuities can offer both a safer alternative to stocks, yet one that still has relatively competitive upside potential. During the accumulation phase, your annuity can earn interest based on the growth of an external index (we call this “indexed interest”). But because you’re not actually participating in the market, the money in your annuity is not at risk. If you prefer, you can instead earn an annual fixed rate of interest that is guaranteed by Allianz. Simply put, your money can grow inside of an FIA, and offer potentially better returns during volatile periods in the stock market.
Protecting Your Nest Egg
One of the neat features of an FIA is that your contract can earn interest based on an external index without you having to actually buy any stocks or shares of an index. Not only will you save on potential trading commissions, but the money you invest in your FIA (also known as your “principal investment”) is not at risk due to market volatility or losses. For those near or in retirement, principal protection may be more critical and an allocation to an FIA could help fill that need.
Tax-Deferred Growth
You don’t pay taxes on the interest your annuity earns until you take money out. This means you can potentially build faster and allows for compound interest, so the money in your annuity can accumulate faster. Once you’re retired and in the distribution phase, your tax bracket may also be lower, further reducing your overall tax burden.
FIAs Can Offer Options
Fixed Index Annuities can be structured in different wats to offer a variety of funding methods and flexible options for receiving your income. Talk to one of our advisors to learn more.
Income is Guaranteed
Fixed Income Annuities are designed to provide a reliable stream of retirement income, which can either be structured for a set period or for as long as you live. Distribution amounts may also be customized, and even increase over time.
Protect Your Legacy, Avoid Probate
FIAs pay your heirs a death benefit if you pass away before you begin taking scheduled annuity payments. And when properly structured, the death benefit is not subject to probate. This means that assets can pass quickly and easily to your loved ones.
