Indexed Annuity Earnings Breakdown: Numbers Revealed by an Annuities Expert
Fixed indexed annuities with lifetime income riders offer a unique blend of stability and growth, making them an attractive option for retirement income planning. Here's a breakdown of how these annuities work and what you can expect.
Flexibility and Growth
When you purchase a fixed indexed annuity with an income rider, you don't set the date in advance for income payments to start. This gives you planning flexibility. In exchange for the guarantee, you'll typically get only part of the market's gains, but the income account value growth rate on the income rider is guaranteed to be between 4% to 8%. The longer you delay taking payments, the greater the income.
Annuitization and Access to Funds
Annuitization, the process of converting your annuity contract value into a stream of income, is a significant aspect of these annuities. When you annuitize a more traditional fixed-rate annuity, such as a multi-year guarantee annuity or a variable annuity, you no longer have access to your money. With a fixed indexed annuity, the income payments are deducted from the contract value, but you retain control over any remaining annuity balance.
Income Payments and Death Benefits
If the annuitant dies after income activation, income payments will cease, and beneficiaries will receive any remaining annuity contract value. If the annuitant dies before income activation, beneficiaries will receive the full annuity contract value as a death benefit. Creating a private pension with an indexed annuity with an income rider can guarantee a lifetime income.
Performance and Risk
Over the long term, a fixed indexed annuity should outperform fixed-income vehicles, such as bonds, but underperform stocks, though with much less volatility. They provide downside protection, meaning the principal is safe if the linked stock index falls, but gains are capped or limited. This trade-off creates a balance: more stable and predictable income than stocks, with growth potential higher than many bonds but without the full upside or daily market risk that stocks carry.
In summary, fixed indexed annuities with lifetime income riders can produce steady, guaranteed lifetime income that tends to exceed typical bond yields but generally falls short of long-term stock returns, offering a compromise between growth potential and principal protection suitable for retirement income planning.
[1] Source: Example income figures provided by insurance company XYZ for illustrative purposes only. [2] Source: Investopedia.com [3] Source: Forbes.com [4] Source: AARP.org
- For those interested in personal-finance and investing, fixed indexed annuities with lifetime income riders can be an appealing option for retirement income planning due to their unique blend of stability and growth.
- During the annuitization process, when you convert a fixed indexed annuity's contract value into a stream of income, you retain control over any remaining annuity balance, giving you flexibility in managing your personal-finance.
