Like a fixed annuity, an indexed annuity is an insurance contract you purchase to help grow your retirement savings safely and guarantee your income in retirement. However, the main difference is that it gives you the opportunity to participate in market growth, too.
Here’s how it works: An indexed annuity offers competitive interest rates linked to 1 or more published, equity-based indices (like the S&P 500 Index®). Index crediting is what provides the growth potential. Credits are based on how the market performs in any given year and are applied to your existing premium at the end of each contract year.
If the index goes up, the value of your annuity is credited with an earnings rate up to a set cap. If the index goes down, you won’t receive a credit from that year, but it also means your premium is protected from market losses.
You purchase an indexed annuity with a 1-time lump sum payment (your principal). In return, you get:
- Tax-deferred growth until you start taking income
- Guaranteed lifetime income if you choose
- Guaranteed death benefit that transfers unused funds to your beneficiary when you die
An indexed annuity can help you keep pace with inflation and ensure your income payments support your lifestyle for as long as you need.
Creating a plan for retirement