WiserAdvisor – Blog

Main Menu

  • Home
  • Financial Advisor Guide
  • Financial Planning
  • Retirement Planning
  • Education Planning
  • Estate Planning
  • More
    • Personal Finance
    • Portfolio Management
    • Financial Trends/Government

logo

Header Banner

WiserAdvisor – Blog

  • Home
  • Financial Advisor Guide
  • Financial Planning
  • Retirement Planning
  • Education Planning
  • Estate Planning
  • More
    • Personal Finance
    • Portfolio Management
    • Financial Trends/Government
Financial Planning
Home›Financial Planning›How to know If Index Annuities are right for you

How to know If Index Annuities are right for you

By WiserAdvisor Insights
October 8, 2019
432
0
Share:

Last Modified on October 19, 2019

Index annuities are increasingly becoming a part of people’s financial portfolios. Its popularity has risen in the last few decades, as it protects investors from the direct risks of stock markets and provides a fixed annuity. But what exactly is this financial instrument and how does it work? And, is it right for all investors? Let’s find out.

What are index annuities?

Index annuities are fixed annuities that protect from downside market instability. They are also known as fixed indexed annuities or equity indexed annuities. They have features that align with both, fixed and variable annuities, and they offer a fixed, minimum guaranteed interest rate as well as returns linked to the market index.

In short, they provide: 

Fixed Annuity + An opportunity to earn from various stock market indices

A large number of indexed annuities are based on S&P 500 – a stock market index that tracks the stocks of 500 large companies in the US. Some offer different index options, too.

Now, let’s understand the lifecycle of index annuities that can be divided into four steps:

  1. Index annuities are purchased by paying a lump sum amount. The amount is taken from 401(K) or other retirement savings accounts. The insurance company then invests this amount.
  2. Next is the accumulation phase, during which, the annuities earn a fixed rate of interest and may earn interest from other indexes that are part of the fixed annuity.
  3. Investors can then defer tax with fixed annuities, which means the money keeps compounding and growing.
  4. The last is the distribution phase. The returns earned are either distributed at the end of the contractual period or are distributed throughout the investor’s lifetime.

Are index annuities a good investment?

Now that you know what index annuities are, let’s look at whether they are right for your investment plan and what are the factors that you must consider.

Compared to other investment instruments, indexed annuities could seem more complex, especially the calculation of the gains. Different firms use different methods for calculating the interest rates. Hence, it is advisable that investors must understand the details before investing. It is also advisable to consult a financial advisor to understand the details of the instrument.

Index Annuities Pros

    • Some indexed annuities offer different index choices. Hence, investors can choose a combination of indices.
    • It offers protection to the principal invested amount from downside market risks.
    • It provides a guaranteed minimum return, which can help investors plan for their retirement savings.
    • The index growth is calculated from the day the policy is issued.
    • It offers numerous options such as annual sum, monthly sum, and other strategies to choose from.
    • Investors can mix and match the options such as fixed rate, annual sum, and monthly sum. 

Index Annuities Cons

    • Indexed annuities are not the best kind of investment instrument, but they can be pretty good when the expectations align with the fixed annuities mentioned.
    • Often, indexed annuities are sold to investors with a false hope of market-upside returns.
    • Indexed annuities are good only when one has an understanding of realistic return expectations from the investment. It helps in allocating index annuities correctly in one’s financial portfolio.

3 Things you should do if you are considering investing in index annuities.

1. Find the right financial advisor

 A good financial advisor would be able to guide you and share the most relevant information with you. You must find an experienced financial expert through a professional financial advisory company.

2.Know what returns you can expect from index annuities

Have a realistic expectation. You can do this only when you understand the details of the way in which index annuities work. Your financial advisor would be able to explain it to you in detail.

3. Read the contract carefully

This is true with any investment. Read the details in your index annuity contract carefully. This will help you understand what returns to expect from your investment.

Still confused about whether or not you must invest in index annuities? Or do you have queries about the different indexes to consider for your plan? Consult financial advisors for their efficient and experienced advice and guidance. 

TagsFinancefinancial planningIndex Fundspersonal finance
Previous Article

How to Invest for Short-Term Goals within ...

Next Article

Things You Need to Know About Estate ...

0
Shares
  • 0
  • +
  • 0
  • 0
  • 0
  • 0
WiserAdvisor Insights

WiserAdvisor Insights

A team of dedicated writers, editors and finance specialists sharing their insights, expertise and industry knowledge to help individuals live their best financial life and reach their personal financial goals. We believe that there is no place for fear in anyone's financial future and that each individual should have easy access to credible financial advice.

Related articles More from author

  • 529 Plan College Saving Plan
    Education Planning

    529 Plan: Everything you need to know while saving for college

    July 16, 2019
    By WiserAdvisor Insights
  • Estate Planning for Single Parents
    Estate Planning

    How is Estate Planning Different for Single Parents?

    May 28, 2020
    By WiserAdvisor Insights
  • Planning-Wealthy
    Financial Planning

    10 Reasons Why Financial Planning Isn’t Just for the Wealthy

    October 1, 2019
    By WiserAdvisor Insights
  • Do's & don't Financial planning
    Financial Planning

    The Dos and Don’ts of Financial Planning

    August 28, 2019
    By WiserAdvisor Insights
  • 6 things you must remember about dedicated portfolios
    Financial Planning

    6 Things You Must Remember About Dedicated Portfolios

    August 20, 2020
    By WiserAdvisor Insights
  • Digital-economy
    Financial Planning

    Modern Aspects of Financial Planning in The New Digital Economy

    February 25, 2020
    By WiserAdvisor Insights

You might be interested

  • Retirement
    Retirement Planning

    Should Your Portfolio Become More Conservative as You Approach Retirement?

  • Stock-Market
    Portfolio Management

    Value Stocks vs. Growth Stocks: Which One is Right for You?

  • Personal--Finance
    Financial Planning

    Important Aspects of Personal Finance in A Changing Economy

  • Popular Posts

  • The benefits of working with a financial advisor - WA

    The benefits of working with a Financial Advisor

    By WiserAdvisor Insights
    July 16, 2019
  • retirement-accounts

    Choosing the Best Retirement Accounts

    By WiserAdvisor Insights
    July 8, 2019
  • financial planning DIY-Checklist

    How to Prepare an Annual Financial Plan – Financial Planning DIY Checklist

    By WiserAdvisor Insights
    June 10, 2019
  • IRAs-Work-401

    How IRAs work? 401k vs IRA

    By WiserAdvisor Insights
    July 4, 2019
  • Retirement-Planning

    Retirement Planning checklist

    By WiserAdvisor Insights
    July 8, 2019
  • Financial-Advisor

    Why and When do you need a Financial Advisor?

    By WiserAdvisor Insights
    July 8, 2019
  • Financial-Professional

    How to prepare for a meeting with your Financial Advisor

    By WiserAdvisor Insights
    July 8, 2019
  • monitor your financial advisor

    How to monitor the activities of your Financial Advisor?

    By WiserAdvisor Insights
    July 16, 2019

Don't miss out! Get our Helpful Financial Tips Newsletter

Categories

  • Business Finance (2)
  • Education Planning (23)
  • Estate Planning (16)
  • Financial Advisor Guide (14)
  • Financial Planning (92)
  • Financial Trends/Government (2)
  • Personal Finance (8)
  • Portfolio Management (36)
  • Retirement Healthcare (1)
  • Retirement Planning (66)

WiserAdvisor is America’s oldest and largest independent network of screened financial advisors. We make it easy and convenient for consumers to find and connect with advisors in their area. We have successfully helped over 100,000+ individuals find their best financial advisor since 1998 with no match fees, no commitments, no obligation, and complete confidentiality. WiserAdvisor has been featured in The Washington Post, The Washington Journal, ABC, CBS, Yahoo and has been seen in numerous other leading financial news and information websites.

Follow Us

  • Recent

  • Popular

  • Financial Habits

    5 Healthy Financial Habits You Need to Practice This Year

    By WiserAdvisor Insights
    January 25, 2021
  • Retirement

    Should Your Portfolio Become More Conservative as You Approach Retirement?

    By WiserAdvisor Insights
    January 22, 2021
  • ETFs

    7 Reasons Why ETFs Are Getting Popular Among Investors

    By WiserAdvisor Insights
    January 21, 2021
  • The benefits of working with a financial advisor - WA

    The benefits of working with a Financial Advisor

    By WiserAdvisor Insights
    July 16, 2019
  • retirement-accounts

    Choosing the Best Retirement Accounts

    By WiserAdvisor Insights
    July 8, 2019
  • financial planning DIY-Checklist

    How to Prepare an Annual Financial Plan – Financial Planning DIY Checklist

    By WiserAdvisor Insights
    June 10, 2019

Contact Us

Corporate Headquarters

12150 Monument Drive, Suite 400
Fairfax, VA, 22033

Business Hours

8:30 AM – 5:00 PM EST (Monday – Friday)

Email Address

wa.assistance@wiseradvisor.com

Phone Number

(703) 651-2060

Fax Number

(703) 259-4487

  • Privacy Policy
  • Terms & Conditions
© Copyright 2019 WiserAdvisor.com. All Rights Reserved.

Add WiserAdvisor - Blog to your Homescreen!

Add