Houston Annuities

Whether you own a business or work for someone else, you'll stop working someday soon. Sadly, at that point, you won't be as energetic and vigorous as you are now. The odds are you won't make as much active income as you do today. But you'll still have bills to pay and a life to live. 

For that reason, you should devise a long-term investment strategy. You need a plan that reflects your financial objectives, time horizon, and risk tolerance.

Fixed-income annuities are low-risk investments that deliver a lifetime income throughout retirement.

What is a Fixed Index Annuity?

It's a low-risk financial policy offered by an insurance company. The instrument lets you participate in a specific stock market index chosen by the insurer. The tool enables you to see gains without exposing you to stock market risks. 

Typically, a fixed indexed annuity is connected to a particular market index such as the S&P 500. 

Good news: even if the market declines, your investment won’t be negatively affected.

Two Reasons Fixed Indexed Annuities May Work for You Guaranteed Regular Income Coupled with Protection for the Principal

A fixed indexed annuity is different from other regular insurance products. Insurance policies typically give you back the original sum plus a small amount of interest. However, with this option, you'll see a higher rate of return than you would with a more conservative instrument. It's the option to choose when you want a steady future income that stays 100% shielded from market volatility.

Safer than Variable Annuities and Mutual Funds

These financial instruments offer a fixed, guaranteed interest rate. They combine this rate with another interest rate that's based on a specific market fund. 

Not surprisingly, these financial products represent much less risk than variable annuities and mutual funds do. However, they offer slightly less potential for return than the alternatives.

How Does a Fixed Index Annuity Work?

You enter into a contract with an insurance company where you agree to pay regular premiums. What do you get in return? You get a financial contract governed by specific terms, conditions, and guarantees. The financial instrument you get helps you:

Get Back Your Initial Investment No Matter What Happens

No one wants to lose their hard-earned money. That's why you need a loss-proof strategy. Luckily, the contract provides a 100% guarantee that you'll access your principal no matter what happens down the road. That doesn't make these products the best investment idea for everyone in every age bracket. Your financial advisor should help you pick a specific annuity option that best suits your situation. 

Earn a Guaranteed Interest Rate

This type of annuity earns interest for you. However, what happens to the gains? The insurance company wants your money to benefit from the power of compound interest. In other words, you get to earn interest on any profits.

The company locks in your gains after a specified period. That period might be 1, 2, or 3 years. The insurer ultimately determines the participation rate. The participation rate is a percentage representing the portion of the gains the company will credit to the annuity.

Realize More Benefits

Some companies provide a fixed indexed annuity with an income rider. This option makes it possible for you to earn a guaranteed lifetime income. Once you start receiving your check, you'll continue receiving it until death. Insurance companies require people who want a regular income in the future to pay an additional fee. That additional cost is referred to as income rider.

Here's one more thing about fixed index annuities. The company allows you to cash out early if you so choose. However, you'll have to pay a surrender charge as a form of penalty.

What is a Fixed Indexed Annuity with an Income Rider?

An income rider is an extra insurance benefit that allows the annuity owner a lifetime income without annuitizing the principal. In the past, you had to annuitize the entire investment if you wanted to receive a lifetime income. The annuity would be converted into a series of regular payments for the annuitant.

In those days, you couldn't access any part of the principal. The whole arrangement didn't make clients feel particularly enthusiastic about the product. Insurance companies needed to do something to make their offerings more palatable. Their search for a better solution birthed income riders. 

Income riders let you grow your money while guaranteeing you a regular retirement paycheck until death. Does the additional benefit sound like something you'd want? If so, it's because the idea makes sense.

Two Types of Income Riders

Different types of income riders exist. Two of the most common are GMIB and GLWB. In most cases, it's better to choose the second option. GLWB stands for Guaranteed Lifetime Withdrawal Benefit. This option is straightforward. It ensures you receive a guaranteed monthly payment until your last day on Earth. 

GMIB, one the other hand, is an abbreviation for Guaranteed Minimum Income Benefit. It's relatively complicated and relates to variable annuity contracts. 

Typically, GLWB income riders offer more peace-of-mind than GMIBs provide. Again, your financial advisor should guide you accordingly regarding the specific rider to choose.

What Happens If a Fixed Index Annuity Company Goes Out of Business?

Companies go belly up, and insurance companies are no exception. So what would you do if the company you're dealing with sank? Every state provides a guaranty fund that protects annuity owners' investment in the event an insurance company collapses. However, it's a limited guarantee, and the specifics vary across states. 

Research every insurance company thoroughly before you hand over the money. Make sure to know the company's credit rating. That's because that information gives you an idea of the business's overall stability and financial strength. Moody's, S&P Global, and Fitch Group provide such credit rating info online.

What is the Difference Between a Fixed Annuity and a Fixed Indexed Annuity?

Both types of annuities let your savings grow while protecting them from loss. Also, both earn interest. However, there's one key difference between them. With fixed annuities, your money earns interest at a rate determined by the insurer. 

Also, the company sets a specified fixed interest rate for a fixed indexed annuity. However, the annuity's earnings are also influenced by the performance of the relevant stock market index.

When Should You Buy a Fixed Indexed Annuity?

Any honest financial advisor will tell you that this annuity shouldn't be the only item in your investment portfolio. Instead, it should be an integral part of a broader strategy that's tweaked continually to optimize returns.

Before exploring these options, make sure you've exploited in full the advantages of your 401 (K) plan. Also, ensure you've benefited to the max regarding your IRA account. These accounts come with certain tax benefits. So, you should grab them. 

Buy fixed annuities:

  • If you don't want to worry about a potential stock market collapse
  • If you value certainty and would like to know right off the bat what interest rate your money will grow
  • If the idea of guaranteed income throughout retirement appeals to you
  • If you can't access life insurance for some reason
  • If risk management intimidates you, and you'd love to pursue growth without risk
  • If you crave maximum downside protection while still having the opportunity to achieve upside potential
  • If you need an option that's considerably safer than variable annuities, stocks, and mutual funds

Do Fixed Index Annuities Offer Any Tax Benefits?

Yes, they do. These are tax-deferred investments. That means there's no tax obligation until some future date. But what happens when you finally withdraw the funds? Your principal won't get taxed at all. However, all gains are subject to taxation. Such earnings are taxed at the regular income tax rate. As you can see, these annuities are (partly) tax-free investments.

Final Thoughts on Fixed Indexed Annuities

Fixed index annuities are stock market crash-proof financial instruments that enable you to earn guaranteed income in retirement. They're associated with minimal risk and offer lifetime income. You really should make them an integral part of your retirement planning. They're one of the safest annuity products you could ever buy. 

Contact us today so we can help you choose the most suitable option. With the right financial advisor, growing and protecting your money becomes considerably easier.

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