Discover the Benefits of Using Fixed Indexed Annuity
Most
individuals fear when annuities are mentioned. They think that investing in
annuities is a big risk to take. This is what most people think, especially
when approaching retirement. But there are other ways one can participate in
the market and also protect themselves from the market downturn. They make a
contract with an insurance company, where they pay a lump sum of money to the
insurance company. The company later promised to return the money with some
interest. Here are several benefits of using a fixed indexed annuity.
Guaranteed Lifetime Income
A fixed
indexed annuity provides an individual with
a reliable source of income during their retirement. This means they offer a
guaranteed income without having to monitor your portfolio. You can, therefore,
get your income without worries even when you outlive your savings. This means
that if you live longer than expected, you still get your regular payment
income.
Principal Protection
With a
fixed index annuity, your principal is well protected. This happens even when
there are market downturns. Your principal will remain safe, and no matter what
happens in the market, it will not be touched or changed. The company takes the
invested amount to treasury bonds or corporations, which in return generate a
steady income stream during the guaranteed period.
Limits on Rate of Return
The use of
fixed index annuities imposes limitations on the rate of return in several
ways. They use methods such as rate caps and participation rates to balance the
potential for higher returns with downside protection. The partition rates
usually determine the percentages of an index return that is being accredited
to the Annuity account.
On the
other hand, the rate caps or yields set a maximum limit on the amount that will
be credited to the accumulation account. These methods work together to control
possible potential gains from the markets while protecting from market
downturns.
Tax-deferred Growth
When you
earn during the fixed index, Annuity, you grow tax - differed. This is to say
that you don't pay income taxes on the earnings before you start receiving
payments or withdraw from the insurance company.
Having
fixed-indexed annuities allows you to accumulate earnings without immediate
taxation. This helps your money
to grow faster because you earn interest on
both the principal and the interest that would have been taxed in a non-tax deferred
account.
Market Participation
Fixed
index annuities allow the users to take part in the market gains. They give an
interest rate that is linked to a stock market index, which protects against
market downturns. They therefore provide a balance between security and
growth potential.
Wrap Up
Using
Fixed-indexed annuities for investment is a wise decision. It helps you to earn
and get income even when you are retired. Other benefits include a guaranteed
lifetime income, growth of tax-deferred, limits on rate of return, and market
participation. These benefits will help you to make an informed
investment decision when choosing an index annuity.
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