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Fixed Index Annuities: Stability in the Face of Volatility?

Published September 28th, 2022 by Island Insurance Agency

Most people use insurance products to protect their financial situation. You probably carry life, health, and property insurance. Did you know an insurance product can also help provide you with financial stability in retirement, even when the market and economy are volatile?

Fixed index annuities may be able to offer good investment returns without the risk of losing your nest egg to volatility. Keep reading to learn how these annuities can help provide you with stability and potential growth.

What Are Fixed Index Annuities?

An annuity is a type of insurance contract where the funds are paid out in a fixed income stream over time. You can invest in these annuities either through monthly premiums or lump sum payments. Many people use annuities as a way to build their retirement fund and ease concerns about outliving their savings.

Fixed index annuities offer fixed base return rates. Usually, these are around 3%. 

However, they are also tied to the performance of an index such as the S&P 500. This allows you for higher potential returns than a fixed annuity. However, you also have less risk than with a variable annuity.

Fixed index annuities are considered to be insurance-based, not investment products like a mutual fund.

Are Fixed Index Annuities Stable?

Stock market volatility is a major concern of many people who are looking to invest and save for retirement. Fixed index annuities can help shield you from market declines, while still giving you growth potential.

These types of annuities offer principal protection. Even if the index your annuity follows performs negatively, your original investment is not at risk. There is essentially a floor created by your principal below which your investment cannot fall.

You can lose money to fees and spending down the account, but not from a stock market downturn. This helps annuitants feel comfortable that their retirement investment is safe while giving them the flexibility of growth. In fact, many retirees feel more comfortable spending freely when they have the backing of an annuity.

It is important to note that this is subject to the ability of the issuing insurance company to pay claims.

In order to protect you from losses, there is a cost. Your annuities won’t earn the same return as the underlying index. Just as there is a limit on your losses, there will be an upper limit on your gains. 

In addition, there will be some fees associated with the annuity.

How to Invest in Fixed Index Annuities

In order to invest in a fixed index annuity, you’ll need to buy an annuity contract. You can make your investment with a lump sum, multiple payments, or a transfer from a retirement plan. 

You’ll then be able to tell the annuity company how you want your money invested. You can choose which index(es) to follow, which will determine your returns. 

You can either choose to put all of the money in one index or divide it across a few indexes. Choosing to follow multiple indexes can help you limit the risk of volatility even more. Talk to an annuity advisor to get the best advice on which indexes may be right for you.

Volatility Protection with Potential Growth

Fixed index annuities can be a great way to get a decent return on your investment and help build your nest egg. At the same time, you don’t have to worry about a market downturn wiping out all of your savings.

If you want to learn more about fixed index annuities and how they can help you meet your financial goals, talk to the experts at Island Insurance Agency

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