Guaranteed returns, you ask? Yes, but it’s complicated – one simple word can make a big difference.
If you have a fixed annuity, you get a fixed rate of return. If you add one simple word “indexed” creating a fixed indexed annuity, you’re tied to the market index rate in anticipation of greater returns. Both have a place in the market, and understanding their differences will help determine which one is best for your retirement savings strategy.
FIXED ANNUITY: In exchange for a lump sum or a series of payments now, the insurance company provides a guaranteed set income amount at a future date. The money in the policy grows tax-deferred at a fixed rate during both the accumulation phase and the annuitization phases. It’s a safe investment strategy with a guaranteed payout.
FIXED INDEXED ANNUITY: This type of annuity’s returns are usually based on the performance of an underlying index like the S&P 500. Purchasing a fixed indexed annuity allows the investors the opportunity to diversify their portfolio. The payoff for the option to diversify means it comes with a higher risk level.
A KEY DIFFERENCE: A key difference between these annuities lies in how insurance providers calculate interest. A fixed annuity offers a guaranteed interest rate for a specific amount of time. If you find the rate of return is too low or the surrender period expires, you can exchange your annuity for another without any tax consequences. A fixed indexed annuity offers a guaranteed interest rate and additional returns if the stock market performs well. However, the trade-off is typically a larger surrender charge, and the formula for calculating returns can often be highly complex.1
IMPORTANT NOTE: It’s important to note that annuities aren’t liquid assets. If you choose to withdraw your funds before the term of the annuity is up, you may have to pay a surrender fee. If you’re under 59½ years old, you could also be subject to a 10% penalty. Therefore, if you think you may need cash soon, tying up all your assets in either kind of annuity may not be the best decision.
If you’re looking to invest now in exchange for a guaranteed return later, it sounds like it’s time to consider adding an annuity to your portfolio. Annuities are complicated, so you’ll need some professional guidance. Contact us today at (540) 720-5656.
1 https://smartasset.com/financial-advisor/fixed-annuity-vs-fixed-indexed-annuity
Amy Anderson joined the ILG Financial team in 2023 as the client relations coordinator. Her responsibilities include scheduling of appointments, annual check-up notifications, and annuity and required minimum distribution assistance. She is a graduate of Harding University with a degree in Computer Information Systems. Amy and her husband have two children and she enjoys reading, crocheting, music and spending time with her family.
Chase Lopez joined the ILG Financial team in 2020 as an advisor. Chase is a 2016 James Madison University graduate with a degree in management. Chase has been trained under the tutelage of Dave Lopez, who is not only the founder and managing member of ILG Financial, but also is Chase’s uncle and godfather. He also enjoys working alongside his cousin, Megan, who is Dave’s daughter. Chase, as a fiduciary, believes in putting his clients interests first, and building out plans for his clients where they can have a happy and fruitful retirement. He married his beautiful wife in February 2022 and both use most of their free time chasing around their little pup, Aurora.
Jessica Carson joined the ILG Financial team in 2018 as an agent. Jessica and her husband have four children, two dogs, 3 barn cats, 5 chickens, and three parakeets. She indeed loves her children and pets! When not at work, Jessica enjoys playing the piano and cello as well as traveling and spending time outside with her family, hiking, fishing, and boating.
Terri Center joined the ILG Financial team in 2019 as client services manager. She handles client records, application processing, and gathering information to provide a professional and friendly experience with all of our clients. Terri is a graduate of Oakland University. She is married and has two children. She enjoys hiking, family time, and puzzle challenging video games. She also likes to share her creativity in her canvas paintings and sewing projects.
Megan Jones joined the ILG Financial team in 2020 as marketing director. Megan and her husband live in Fredericksburg, VA with their German Short Haired Pointer, Gus. Megan is a graduate of Longwood University and holds a degree in communications. Megan is the oldest of Dave Lopez’s three children and not only enjoys working alongside her father, but also with her cousin, Chase, who joined the ILG Financial team in 2020 as an advisor. When not at work, Megan enjoys sitting on the back porch with family and friends enjoying food and music.