The Index Annuity - Retirement Income Plus Control

By Barry Unterbrink

 

Fixed Index Annuities (FIA) - Growing your Retirement Income

The fixed index annuity (FIA) allows for multiple options to accumulate retirement money - then offers a couple more ways to access that money to spend. New benefits focus on protecting your principle, while allowing for higher interest credits than traditional fixed annuities.

Think of this process as two phases working at the same time. The 'collection' phase and the 'payout' phase. During the collection phase, your principal deposit earns either a fixed rate or an indexed rate. The rates are reset every 12 months and guaranteed for one year. Generally, more than one index rate is offered by the insurance company. For instance, the fixed rate may be 3% now. The index rates vary according to the performance of an equity index, like the S&P 500 index or the Nasdaq Composite index. Follow me here on this example.

Let's use $100,000 as our deposit amount, along with the S&P 500 index. If stock prices (the index) move up at least 8%, you'll earn an account credit of 8%. End of year one you have $108,000. If year two is down 12%, you still have $108,000, since you cannot lose principal in a FIA. If year three is +11%, you still earn 8%; that is the 'cap' established, so now your account will have $116,640. If year four and five are +12% and +5% on the S&P 500, you earn 8% and 5%. Your ending account value would be $132,270.

Now you're ready to start the payouts, taking income. Your principle money, $132,270, can continue to accumulate and grow during the payout phase, so you are not annuitizing your account. The issuing insurance company guarantees you a minimum lifetime yearly income in future years according to a set schedule. This is important, since if left on your own, you may need income or retire when interest rates are very low, and then be forced to spend into your principal.

One company I use guarantees your income as follows:
Age at start of annuity plan: 60 with $100,000.
Years in the plan: 5 - income will be $6,691 per year at age 65.
Years in the plan 10 -income will be $8,881 per year at age 70.

In percentage terms, that's 6.7% and 8.8% respectively - not bad in most any interest rate or economic environment. Your income can never decrease. If you need the income sooner, you can get it right away, based on your age: at 65, get 5.5% guaranteed for life, at 70, get 6% for life, etc. You still have control over the accumulated value of the $132,270 should you wish to cancel the plan in later years. And as your account grows in ensuing years, your income could rise further. Withdrawals of 10% of account value are available each year.

In summary, don't rule out Fixed Index Annuities to provide retirement savings and income while in retirement. Why not start today. Starting ages are as low as 40 now, with minimums of $10,000 (lower for IRAs).

Barry Unterbrink has held positions in the financial services industry since 1982. His experience includes portfolio manager for institutional pension funds totaling $80 million, Investment Advisory President and financial newsletter publisher (Consensus of Insiders). A finance graduate of Stetson University, he currently operates as a fee-based Retirement Planning Counselor. He has resided in Fort Lauderdale since 1968. He can be reached at (954) 719-1151 or at http://www.stetsonwealthmanagement.com Article Source: http://EzineArticles.com/?expert=Barry_Unterbrink