Fixed Indexed Annuity
Let's start by breaking down the name. The word "Fixed" is not at all helpful since the rate of return can be anwhere from zero to double digit. I think the word is porly chosen to indicate that the principal investment is not in the market and cannot go down based on stock market losses. The word "Indexed" refers to how interest is earned. Rate of return is dictated by linking performance to an outside market index over a period of time. At the anniversary, an interest credit is locked into the account if the index rose. A decline in the underlying index results in a zero credit. The word "Annuity" indicates that the institution backing the plan is an insurance company. An annuity can be utilized as a powerful savings account or structured as a source of lifetime income.
In the FIA graph above, a 10% gain was locked in for years 1 and 2, but year 3 was a substantial loss that would have wiped out all the gains and some principal as well if this was a mutual fund or stock portfolio. But because it is an FIA, a zero interest credit is all that happened and when the 10% gain in year 4 was locked, it was added to the previous 121,000 high point.
As with all forms of indexing, the biggest disadvantage is the longer term nature of the plans and lack of full liquidity in the early years. To avoid a penalty, annual withdrawals should typically be 10% of less of the balance. The good news is that if you don't exceed the penalty free amount, there is no fee at all for a basic plan. And best of all, the limitation on withdrawals ends after a certain number of years, typically ten and would be fully liquid for life after that point. By the way, no fees apply upon death and in most cases when Long Term Care is needed.
I am licensed with dozens of the best insurance companies and will shop for the best plan based on how you prioritize the various features such as:
Insurance company strength and track record
Performance of the underlying indices
Liquidity options
Availability of Lifetime Income features
Duration of each session
Fee percentage and duration in case of excessive withdrawal
Bonuses
Number and type of index options
After we chat about this for a bit I will work up a personalized proposal and brochures for a plan or two that I think might be a good fit.
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