Fixed Indexed Annuities

Fixed indexed annuities are annuity plans that offer the security of a standard fixed annuity with the earning potential of a market-earning annuity. They are designed to allow the investor to earn the most dividends on their investment without risking their principal to the open market. While they most often do not earn quite as much as fully market invested accounts, they can offer a much larger return on investment than traditional fixed accounts.

In that respect, fixed indexed annuities are a sort of best of both worlds approach to retirement investing. They offer all of the same benefits of a fixed rate annuity such as tax deferred earning and guarantee of principal. On the other hand, they offer the opportunity to earn more on the principal investment by using a passive market approach to investing. This approach, while sometimes less prosperous than aggressive investment options, minimizes the risk of losing on the investment with unpredictable markets.

Options for Fixed Indexed Annuities

As with all types of annuities, fixed indexed annuities offer several plan options that can be custom tailored to the individual preferences and needs. These annuities can offer a lifetime source of income that is so desperately needed during the retirement years, if that option is chosen. The compounding interest earned on fixed indexed annuities is tax deferred. This means that dividends that would normally be taxed as capital gains on other types of investment accounts will not be taxed until the annuity begins to pay out. This allows an individual to accumulate interest faster and at a higher rate than they would if they were required to pay taxes at the time of earning them.

Another tax related benefit on fixed indexed annuities has to do with how the taxes are assessed. Once annuity payments begin to be disbursed to the investor, the money converts from tax deferred earnings to income subject to income tax. However, only the interest earned that is disbursed may be taxed. The principal portion of annuity payments have already been assessed for income tax and therefore cannot be taxed again.

Greater Income, Lower Risk

Individuals who would like to see their retirement account grow at a much faster rate than that offered by fixed annuities but do not wish to take the risk of losing their principal investment will appreciate the flexibility of a fixed indexed annuity plan. It is an excellent option for greater income security in the future. However, fixed indexed annuities tend to be much more complex than standard fixed annuities. The interest earned from one period to another will depend on the performance of the indices of the market.

The owner of a fixed indexed annuity does not actually invest in any shares of stock in the market. Rather, they earn interest based on what the market is doing. It can be somewhat confusing at first with the options and terms surrounding this type of annuity, but speaking with a representative or financial advisor can help individuals decide on the best term for them.