Basics Of Fixed Indexed Annuities

**Financial Oversight: Neglecting the Benefits of Fixed Indexed Annuities for Retirement Planning**

**Understanding Fixed Indexed Annuities (FIAs):**

1. A fixed indexed annuity is a financial instrument managed by a life insurance company that offers specific contractual guarantees*. This type of annuity allows individuals to invest their funds with the benefit of growth potential while minimizing exposure to market risks. Unlike variable annuities,** where cash values are susceptible to market fluctuations, or immediate annuities that necessitate a permanent decision to convert assets into a series of payments, fixed indexed annuities provide a cash accumulation value that grows independently of market volatility. Most FIAs allow you the flexibility to withdraw funds as needed (see point #6 below) or to let your investment continue to grow without the obligation to exchange the cash value for a steady income stream.

2. Annuities accommodate both IRA and non-IRA funds**. You have the option to fund an annuity using cash from a checking account or bank, or by initiating an IRA or rolling over funds from an existing IRA or 401(k). Transferring a 401(k) or IRA into an IRA annuity typically qualifies as a non-taxable event**.

3. Fixed indexed annuities offer tax deferral*** (or potentially tax-free growth in the case of a Roth IRA), giving you the ability to time your income tax obligations. While there is no added tax benefit for placing IRA funds into an annuity (though the annuity may offer various other advantages), the tax-deferral feature for non-IRA funds provides a significant edge over many alternatives that require tax payment on earnings each year. Non-IRA annuities can postpone income tax obligations for an extended period, as there is currently no IRS limitation on the amount you can contribute to a non-IRA annuity.*****

4. Your principal investment is guaranteed*, and interest earned is credited to the principal, safeguarding it from market risks. Many other investment options may not offer such levels of protection.

5. You can earn interest that is linked to a stock or bond index without actually being invested in the index itself. This structure protects the value of your annuity from declines associated with investment downturns. Additionally, numerous fixed annuities allow for allocation of part or all of your funds to a fixed interest rate that is not tied to any index.

Overall, understanding the features and benefits of fixed indexed annuities can help you make informed decisions for your retirement strategy.

6. Most contracts allow for 10% penalty-free withdrawals beginning in the first year. In contrast, financial products lacking this feature may necessitate selling at a loss to access funds. If you exceed the penalty-free withdrawal limit from a fixed indexed annuity, penalties imposed by the company may apply, typically within the first 5 to 15 years of the contract, depending on its specific terms. These penalties are designed to safeguard the insurance company from losses and, in turn, protect the policyholder. Certain contracts may also provide additional penalty-free access to funds if the owner experiences a nursing home stay or unemployment.

7. Some contracts include interest bonuses for each premium paid. While these bonuses are generally not available in cash, they enhance the policy values, contributing to an increase in compound interest earnings.

8. Since costs are embedded in most fixed annuities, additional fees are usually incurred only when the contract owner opts for specific riders, such as an income for life withdrawal benefit, enhanced death benefit, or enhanced interest option.

9. When there is positive movement in an external index over a designated period, typically one year, fixed interest is credited to your contract value. This process is facilitated by the annual reset feature (refer to the section titled Annual Reset). It is important to note that the interest credited will generally be less than the total increase of the external market index.

10. The amount of index-linked interest you may receive is influenced by the selected crediting methods and indexes. Caps, spreads, or participation rates are employed within these methods to establish the portion of index gains credited as fixed interest. These metrics are announced on an annual basis by the company and are subject to modification. For specific details about each contract, please consult your Future Benefits agent.

11. In the event of a negative movement in an external index over a one-year period, the principal amount typically remains unchanged, unless specified otherwise in your contract. If you continue to be linked to the same index after experiencing a negative year, the resulting lower index value will serve as the new starting point for the upcoming contract year. This is a feature of the Annual Reset provision, which may present opportunities in the following year after the index has declined.

12. Many fixed indexed annuities offer a guaranteed lifetime income for you, your spouse, or both parties. This lifetime income remains available even if the cash value of your contract is fully exhausted. These riders typically provide guaranteed growth, ranging from 5% to 7% annually, to ensure the provision of a secure lifetime income (refer to Guaranteed Growth & Lifetime Withdrawal Basics for further details).

13. Most annuities grant beneficiaries an immediate death benefit without incurring any surrender penalties. Spousal beneficiaries usually have the option to continue the contract and assume ownership. This waiver of penalties upon death alleviates concerns for many individuals considering the purchase of an annuity at an older age. It is important for older clients to recognize that many annuities may not be available for acquisition after the age of 80 or 85, establishing a timeline for securing these valuable benefits.

Why not consider safeguarding and enhancing a portion of your assets with a fixed indexed annuity?

Schedule a no-obligation financial review with a Future Benefits Agent by clicking here or by calling us at 901-754-2040.

*Note: Guarantees are contingent upon the claims-paying ability of the insurance company issuing the contract. Additionally, purchasing any extra cost riders may reduce the contract’s value by the cost of those riders, potentially impacting your principal in any year where the contract does not earn interest or earns less than the rider charge. Withdrawals exceeding penalty-free amounts may incur surrender charges. This information is intended to be general; specific details and guarantees of fixed annuities can vary between contracts. Please consult your agent and the company materials for the particulars of your contract. We do not function as stock brokers or financial advisors and do not provide investment advice. Additionally, we do not offer tax or legal advice. Be aware that distributions from traditional IRAs before age 59½ are taxed as ordinary income and may incur a 10% IRS federal tax penalty. Furthermore, interest from non-IRA annuities and Roth IRAs may also be subject to ordinary income tax and a possible 10% IRS federal tax penalty.

Refer to our Professional Disclaimer.