Fixed Index Annuities ("FIA")

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Solve For Principal Protection 

FIAs are used for clients nearing or in retirement and are designed to fully protect your principal from any stock market downturns.

FIAs are non-correlated to the stock market and help mitigate Sequence Of Returns Risk by lowering the risk of your investment and retirement income portfolio and help keep your long term plan on track.  

Solve For Fixed Income - A Floor-With-Upside Approach To Income

FIAs offer you a unique "floor-with-upside" method of crediting interest. FIAs will pay you a minimum guaranteed rate of return for the life of the contract (the "floor") - but also provide you with the potential to earn higher interest rates via other interest rate crediting strategies (the "upside") - and you earn the higher of the "floor" or "upside", for the life of the contract.

FIAs may make sense if you are looking to de-risk some of your bond portfolio as part of your fixed income asset allocation.

Interest Rate Crediting Strategies

FIAs offer a "cap" option, a "performance trigger" option or a "participation rate" option that provide you with a level of performance when the market goes up. The cap option and the performance trigger option are the most popular interest rate crediting strategies.

Each interest rate crediting strategy is the combination of:

(1) the index you select (for example, the S&P 500 Index, Nasdaq-100 Index, Russell 2000 Index, etc.),

(2) the crediting method you select (also called an index strategy), and

(3) the time period for measuring the index performance that you select (term).

Cap

​Caps provide you with the potential to earn a portion of the increase in an index over a contract term.  

For example, if you select a 1-year term with a 11.00% Cap based upon the performance of the S&P 500 Index:

​(1) If the S&P 500 Index gains any amount equal to a greater than 11.00% for the contract term, then you will earn 11.00%.

(2) If the S&P 500 Index gains any amount from 0% to 11.00% for the contract term, then you will earn the same percentage of interest that the index gains. For example, if the index gains 4.13% for the contract term, then you will earn 4.13%.

(3) If the S&P 500 Index declines in value for the contract term, then you will earn 0.00%. Your principal is guaranteed even if the S&P 500 Index crashes like in 2007-2009.

Performance Trigger

Performance triggers provide you with the potential to earn a specified percentage if the index gains any amount equal to or greater than 0% for the contract term.

For example, if you select a 1-year term with an 8.85% Performance Trigger based upon the performance of the S&P 500 Index:

(1) If the S&P 500 Index gains any amount equal to or greater than 8.85% for the contract term, then you will earn 8.85%.

(2) If the S&P 500 Index gains any amount from 0% to 8.85% for the contract term, then you will earn 8.85%. For example, if the index only gains 4.13%, than you will earn 8.85%.

(3) If the S&P 500 Index declines in value for the contract term, then you will earn 0.00%. Your principal is guaranteed even if the S&P 500 Index crashes like in 2007-2009.

No single interest rate crediting strategy consistently delivers the best return under all market scenarios and performance will vary depending upon market conditions.

Notes:

(a) The interest rate crediting strategies typically can be changed annually throughout the contract period.

(b) You can combine different interest rate crediting strategies.

(c) The interest rate crediting strategy gains are locked in annually on each contract anniversary date.

(d) The interest rate crediting strategy cap rates, performance trigger rates and participation rates typically change each year.

(e) The ratings, fixed rates and availability are subject to change at any time.

Most FIAs have no annual fees (if no Income Rider is attached).

The majority of FIAs range from as short as 3 years to as long as 10 years.

Solve For Tax-Deferred Growth

If you purchase a FIA in a non-qualified account (for example, assets held in an individual or joint account) - you don't pay taxes on the interest until the money is withdrawn - so your interest can grow and compound tax-deferred.

Also, unlike Traditional IRAs, 401(k)s and other retirement vehicles, FIAs do not have mandatory Required Minimum Distributions ("RMD").

When FIAs mature, they can be renewed or exchanged to another FIA or other type of annuity without tax consequences to defer income until later in retirement when you may be in a lower tax bracket and your withdrawals may be taxed at a lower rate. *

May Help Reduce Taxes On Social Security Income

Potentially up to 85% of your Social Security benefits may be subject to income tax depending upon:

(a) your Social Security benefits,

(b) the amount of income you are earning, and

(c) the sources of your income during retirement.

Interest on savings accounts, CDs, money market mutual funds, taxable bonds and municipal bonds is included in Provisional Income, the IRS threshold above which social security income is taxable.

However, FIA interest can compound and grow tax-deferred and be excluded from the Provisional Income calculation until interest is withdrawn.

By moving some of your funds into a FIA, you may be able to help reduce taxes on your Social Security income, by controlling the timing and amount of withdrawals from your FIA, when you may be in a lower tax bracket and withdrawals may be taxed at a lower rate.

Solve For Flexibility

Most FIA contracts allow you to withdraw up to a specified percentage of interest and/or principal each year during the life of the contract without being subject to an early surrender charge.

This penalty-free feature can be used in conjunction with Social Security, pensions, etc. as part of your retirement income plan.

Solve For Annuity Rescue

If you own an existing fixed or variable annuity, you may want to explore the potential opportunity of exchanging your current annuity into a FIA. 

Our free ANNUITY RESCUE SERVICE can provide you with an evaluation of your existing annuity contract(s) to determine if it is possible to achieve your goals more effectively. 

Examples

Following are two detailed charts that illustrate how FIAs with caps and performance triggers work.

Example 1:

Fixed Index Annuity with a 1-Year Term and 11.25% Upside Cap

Example 2:

Fixed Index Annuity with a 1-Year Term and 7.75% Upside Performance Trigger

Following is a summary of key features and benefits that FIAs offer:

Most FIAs Have No Annual Fees (if no Income Rider is attached)

Principal Protection

Unlike variable annuities that can lose value, FIAs are not subject to penalties or market losses if held to maturity. Your principal is fully protected against stock or bond market downturns.

FIAs are issued by life insurance companies and guarantees are backed by the financial strength and claims paying ability of the issuing insurance company. We work with only the highest rated insurance companies in the industry. FIAs are regulated at the state level. *, **, ***

Sequence Of Returns Risk Mitigation 

FIAs help protect your income from stock or bond market down turns which, as you near or are in retirement,  can help lower your stress level and give you Peace Of Mind.

FIAs Can Become A Part of Your Fixed Income Allocation Within Your Investment And Retirement Income Portfolio

Potential To Outperform CDs and MYGAs

Guaranteed Minimum Return

Interest Rate Crediting Strategies

Strategy choices can be changed annually.

Gains Permanently Locked In On Contract Anniversary Dates

Gains can be automatically added to your annuity contract to compound and grow tax-deferred... or sent directly to your bank account.

Can Be Used To Create Income Ladders That Mature At Different Years In The Future Similar to laddering CDs or bonds, FIAs work well in conjunction with MYGAs, SPIAs, DIAs and QLACs to create annuity income ladders.

Penalty-Free And Systematic Withdrawal Options

Most FIA contracts allow you to withdraw up to a specified percentage of interest and/or principal each year during the life of the contract without being subject to an early surrender charge.

Flexible Funding

All FIA policies can be funded with a lump sum and some FIAs allow you to add money over time.

Can Be Purchased In IRA, Roth IRA And Non-IRA Accounts ****

Your Interest Can Compound And Grow Tax Deferred In Non-IRA Accounts

​Unlike CDs, the interest on FIAs compounds and grows tax deferred in non-qualified accounts (for example, assets held in an individual or joint account) until interest is withdrawn.

Also, unlike Traditional IRAs, 401(k)s and other retirement vehicles, FIAs do not have mandatory Required Minimum Distributions ("RMD"). When FIAs mature, they can be renewed or exchanged to another MYGA or other type of annuity without tax consequences to defer taxes until later in retirement when you may be in a lower tax bracket and your withdrawals may be taxed at a lower rate. ****

May Help Reduce Or Eliminate Taxes On Social Security Income

Potentially up to 85% of your Social Security benefits may be subject to income tax depending upon:

(a) your Social Security benefits,

(b) the amount of income you are earning, and

(c) the sources of your income during retirement.

Interest on savings accounts, CDs, money market mutual funds, taxable bonds and municipal bonds is included in Provisional Income, the IRS threshold above which social security income is taxable.

However, FIA interest can compound and grow tax-deferred and be excluded from the Provisional Income calculation until interest is withdrawn.

By moving some of your funds into a FIA, you may be able to help reduce taxes on your Social Security income, by controlling the timing and amount of withdrawals from your FIA, when you may be in a lower tax bracket and withdrawals may be taxed at a lower rate. *****​

Income Riders Can Be Attached For Future Guaranteed Lifetime Income

Some Income Rider Benefits Provide Confinement Care

Can Be Converted To A SPIA For Lifetime Income Guarantees

If you die before liquidating a FIA, your beneficiaries will receive the remaining value of your annuity as a death benefit - not the insurance company!

May Avoid Probate

Any remainder in your FIA can usually efficiently pass outside of probate and be paid discreetly and directly to your heirs (not the insurance company) within weeks after all required paperwork is received in good order.

That allows your loved ones to bypass the long, painful and costly probate process - saving them time, court costs, administrative costs and legal fees - and leaves your heirs money instead of family court battles and legal fees.****

Create A Legacy That Lasts

Spousal Beneficiaries And Inherited FIAs

The taxes your spouse may owe will be dependent upon the distribution option he or she chooses when they inherit your annuity. Any taxes owed on distributions are deferred until he or she receives them.

Qualified (IRA) Annuities

A Spousal Beneficiary may elect to:

(a) receive a one-time lump sum payment,

(b) keep the FIA in your name, continue to enjoy the benefit of compound tax-deferred growth, and take out RMDs using his or her life expectancy or a payout option that provides income for a specified period of time,

(c) switch the FIA into his or her name, continue enjoying the benefit of compound tax-deferred growth, and take out RMDs using his or her life expectancy or a payout option that provides income for a specified period of time, or

d) exchange the inherited annuity to another annuity if it is more beneficial to his or her specific situation, continue enjoying the benefit of compound tax-deferred growth, and take out RMDs using his or her life expectancy or a payout option that provides income for a specified period of time. Options (b), (c), and (d) potentially may help your spouse significantly reduce taxes on inherited qualified FIAs by deferring taxes until later years when he or she may be in a lower tax bracket. *****

Non-Qualified (non-IRA) Annuities

A Spousal Beneficiary may elect to:

(1) receive a one-time lump sum payment, or

(2) select from options (b), (c) or (d) above. Options (b), (c) and (d) are referred to as a “Non-Qualified Stretch” and potentially may help your spouse significantly reduce taxes on inherited non-qualified FIAs by deferring taxes until later years when he or she may be in a lower tax bracket. ******

Non-Spousal Beneficiaries And Inherited FIAs

The taxes a non-spousal beneficiary may owe will be dependent upon the distribution option he or she chooses when he or she inherits your annuity. Any taxes owed on distributions are deferred until he or she receives them.

Qualified (IRA) Annuities

A non-spousal beneficiary may elect to:

(a) receive a one-time lump sum payment, or

(b) distribute 100% of inherited qualified FIAs within 10 years which may help significantly reduce taxes by deferring taxes until later years when he or she may be in a lower tax bracket. ******

Non-Qualified (non-IRA) Annuities

A non-spousal beneficiary may elect to:

(a) receive a one-time lump sum payment; 

(b) switch the FIA into his or her name, continue to enjoy the benefit of compound tax-deferred growth, and take out RMDs using his or her life expectancy or a payout option that provides income for a specified period of time, or

(c) exchange the inherited annuity to another annuity if it is more beneficial to his or her specific situation, continue enjoying the benefit of compound tax-deferred growth, and take out RMDs using his or her life expectancy or a payout option that provides income for a specified period of time. Options (b) and (c) are referred to as a “Non-Qualified Stretch” and potentially may help your non-spousal beneficiary significantly reduce taxes on inherited non-qualified FIAs by deferring taxes until later years when he or she may be in a lower tax bracket. ******

* Surrender charges, market value adjustments and other contract charges may apply that can reduce the principal if liquidated before maturity.

** Guarantees are backed by the financial strength and claims paying ability of the issuing insurance company.

*** The insurance company charges no liquidation penalty if held until maturity; however, similar to assets held in an IRA, FIAs are typically designed for long-term tax-deferred investing. If you take withdrawals before you reach age 59 1/2, then you may have to pay a 10% early withdrawal federal tax penalty in addition to ordinary income taxes. You should request and review a product Fact Sheet, for complete information and restrictions that may apply, prior to making any decision to purchase a FIA product.

**** The purchase of an annuity within a retirement plan that already provides tax deferral under sections of the Internal Revenue Code results in no additional tax benefits. An annuity should be used to fund a qualified plan based upon the annuity’s features other than tax deferral. All annuity features, risks, limitations, and costs should be considered prior to recommending the purchase of an annuity within a tax-qualified retirement plan. In addition to surrender charges, withdrawals are subject to income tax.

***** Please consult with and rely on your own legal or tax advisor and refer to your contract.

****** Please consult with and rely on your own legal or tax advisor and refer to your contract for situations of joint owners and annuitants.