Benefits of Annuities

Your decisions concerning your retirement will have an impact on your future, so we here at Tower Bridge Financial believe you should have all the possible information available to you. Give us a call today to receive more information about the benefits of annuities and to see if they are suitable for you.

What are the Benefits Of Fixed Index Annuities?

A fixed index annuity (FIA) can offer a lot of great benefits for retirees. But the biggest one is keeping your money safe. This just means that even if you choose an index that drops in value, you won’t have any losses. Insurance companies are required by law to keep your money protected. In this way, you have the opportunity for profits based on the performance of your index, all with safety from the insurance company and without the hazard of losing your hard-earned money. With a set reasonable rate of return, you won’t need to worry about losing your nest egg to market volatility. For many retirees, this benefit of annuities gives them the peace of mind that they won’t outlive their retirement income.*

Indexed Interest Potential

Understanding annuities is a crucial part of your retirement strategy. An FIA stands for “fixed index annuities”. Because the phrase “fixed” is used when speaking about this type of annuity many retirees assume it offers no flexibility. However, in reality, a fixed index annuity (FIA) can provide you with a large amount of flexibility to make your own choice. 

For example, one of the many benefits of a fixed index annuity (FIA) is that you have the option to choose which type of index you would like. You can choose an external index, even though you are not purchasing stocks or funds. Your fixed index annuity (FIA) can grow interested based on the changes in the index you pick. You could even choose how much of your annuity you want to connect with certain indexes.

The second benefit of a fixed index annuity is the buyer’s ability to choose their crediting method. This just means the insurance company has to follow a set of timeframes and rules used to calculate any potential index intertest. For example, you could choose a monthly or annual crediting method. Also, certain crediting methods use the average value over a certain period. Other fixed index annuities may figure out interest rates by looking at the difference in index value from one period of time to another. Finally, you may have a fixed index annuity (FIA) that uses an annuity contract date to designate its index value. This just means, every year, on that same date, the value of the index is calculated.

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What Affects Potential Interest Rates?

When you purchase your fixed index annuity (FIA), you often have a choice of index(es) to which you can allocate your annuity’s value. Also, you can choose the crediting method used to record any change in your chosen index(es). But before choosing your annuity’s crediting method it is important to take a closer look at the contributing factors that influence the calculation of your indexed interest potential.

Certain fixed index annuities (FIAs) set a ceiling or maximum rate of interest on the amount a contract can earn, otherwise know as a CAP, during a certain time frame. This is usually a month or year. If your chosen index increase goes above the cap, the cap is then utilized to calculate your interest rather than the index rate.

Some fixed index annuities (FIAs) implement participation rates after caps. This means a participation rate will be used to determine how much of the index increase will be used to calculate your indexed interest rate. These are usually applied after caps but before a spread.

Certain fixed index annuities (FIAs) utilize a spread to measure indexed interest. They subtract a percentage from the gains that the index reaches within a set term. For example, if an annuity spread is 4% and the index increases by 10% – the annuity contract would get a credit of 6% indexed interest.

Crediting Method Choices

No one crediting method consistently produces the most interest under all market conditions. An explanation of some of the more popular crediting options is provided below:

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This method tracks the changes in the market index from one contract year to the next one and credits the interest, based upon that annual change.

Using this method, individual monthly decreases and increases are tracked and added up. Their total sum helps determine the index interest credited to your annuity.

This method means the individual monthly index values are totaled and divided by 12 to find the average. The starting index value is then subtracted from the average to figure out the amount of positive or negative index change. Then this amount is divided by the starting value you figure out the percentage of interest credited to your annuity.

It is important to keep in mind that participation rates, spreads, and caps will also be a deciding factor in the calculation of indexed interest, and could reduce the amount of interest credited to your annuity. 

For a clearer understanding of the way each crediting method works and the benefits of an annuity, feel free to speak to our team here at Tower Bridge Financial. We are happy to answer all your questions and provide you with any additional information you need.

Annual Reset

Automatic annual reset is a common fixed index annuity (FIA) feature. At the end of every year of your annuity contract, the index values of your annuity automatically reset. This just means that this year’s ending value becomes the next year’s starting value. Additionally, automatic annual rest locks in any interest your contract earned during the year.

What Is Interest Potential Of A Fixed Index Annuity?

Before we can understand the potential for indexed interest accumulation of an annuity, first we need to learn how a fixed interest rate is determined for your chosen annuity. You can choose an index – or multiple indexes, to link to the annuity. When it comes to types of indexes, there are many options to select from. No need to worry, our team here at Tower Bridge Financial can help you navigate your options.

Once you choose your type of index, the life insurance will record how well your index is performing using a crediting method. Lastly, at the end of the year, the insurance company will establish the rate.

When the rate increases over a particular point, you will receive the index interest earnings. But, if the index drops you are protected. The value of your annuity won’t drop because the index did. Your interest rates are dependent on factors like cap, participation rate, and spread. Because no one retiree’s situation is the same as another’s, each decision will be different. There is no “one size fits all” approach when it comes to fixed index annuities (FIAs) and other annuities.

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