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Fixed Index Annuity
One of the challenges of retirement planning is figuring out exactly how much money you need to save to maintain your desired standard of living for an indeterminate amount of time. Annuities work well for many people because they guarantee a specific amount of income regardless of the state of the market. Here at Harlow Wealth Management, we offer several types of annuities to our clients, including fixed index annuities. Here is some important information about this type of product.
How Do Fixed Annuities Work?
Like all annuities, a fixed annuity is a contract between you and an insurance company. You agree to provide a lump sum or premium payments, and the insurance company agrees to pay you a fixed amount on a regular basis for an agreed-upon amount of time. Rather than being subject to changing interest rates, fixed annuities keep the rate that is locked in during the purchase for a given amount of time specified in the contract.
What Is a Fixed Index Annuity?
A fixed index annuity guarantees a minimum interest rate, like a fixed annuity, but has an additional feature: your contract can earn interest at a higher rate based on an external market index, such as the Dow Jones, without actually participating in the market. Two important aspects govern the potential interest rate of fixed index annuities: the floor and the cap. The amount of interest you earn during the term period will always fall between the floor and the cap. When the market index performs well, your interest rate won't exceed the cap. However, when the index performs poorly, nothing happens. This structure offers important benefits for consumers:
- Tax-deferred interest credited to contract until withdrawals are made
- Credited interest unaffected by poor market performance
- For certain contracts, the option to receive a set interest amount
- Potential for higher long-term interest credit accumulation than a fixed annuity
Who Should Consider Fixed Index Annuities?
As with any financial vehicle, it's vital to research extensively and work with a financial professional before deciding to commit. However, fixed index annuities can work well for certain people:
- Those quickly approaching or starting retirement
- Those who want a guaranteed income with good potential growth and minimal risk
- Those who are looking for a long-term product to include as a portion of their retirement strategy
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We here at Harlow Wealth Management are ready to answer your questions and help you develop an effective investment and retirement income strategy. Schedule a no-obligation meeting through this form or call 800-782-2136.
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