In an fixed indexed annuity, the insurance company credits you with a return that is based on changes in an index, such as the S&P 500 Composite Stock Price Index. Indexed annuity contracts also provide that the contract value will be no less than a specified minimum, regardless of index performance.
Your principal is linked to the market, which provides opportunity for higher returns, but protects your money from any market downside.
Pros of Fixed Indexed Annuities
Higher growth opportunities than many safe-money investments
Fees range from 0% – 1.5%
Secure growth of up to 5.5% annually for as long as twenty years (as long as you take that growth as income)
Cannot lose principal or growth due to market volatility
Optional, guaranteed lifetime income
Principal and growth available at term’s end in a lump sum withdrawal
Full accumulation at death
Disclosure documents are typically 6 pages or fewer (less complication)
Cons of Fixed Indexed Annuities
May not always link to indices for full market growth