Len Strickler, CEO
Managing PartnerLen works with fixed indexed annuities and principal-protection strategies, and is the author of Way of the Financial Warrior.
Read full bio →Fixed index annuities
Help protect part of your savings from market losses
We'll explain how fixed index annuities work, the benefits and the trade-offs, so you can decide if one belongs in your plan.
Is this you?
If any of these sound familiar, this page is for you.
- A big market drop right before or during retirement keeps you up at night.
- You want part of your savings protected from market losses, without sitting entirely in cash.
- You've heard about annuities on the radio, and you're curious but skeptical.
- You want a source of retirement income you can plan around.
- You'd like someone to explain the fine print in plain English.
What we look at
What a fixed index annuities review covers
How much to protect
Which part of your savings, if any, you'd want protected from market losses, and how much you need to keep liquid.
Crediting method
How interest is credited: the index, the cap or participation rate, and how those can change over time.
Surrender period
How long your money is committed, what surrender charges apply, and what you can withdraw each year without one.
Income riders and their cost
Whether an income rider fits your income plan, and what its annual fee does to your contract value.
Taxes
How tax deferral works and how withdrawals may be taxed, so there are no surprises.
The issuing insurer
Who stands behind the contract, since guarantees depend on the insurance company's claims-paying ability.
How it works
How a fixed index annuity earns interest
A fixed index annuity (FIA) is a contract with an insurance company. It isn't a bank deposit and it isn't a direct investment in the stock market. Instead, the interest it credits is linked to the performance of a market index, such as the S&P 500.
When the index rises, your contract may be credited interest up to a limit, set by a cap or a participation rate. When the index falls, a 0% floor is designed to keep your credited value from going down because of index losses. Guarantees are subject to the claims-paying ability of the issuing insurance company.
Caps and participation rates are set by the insurer and can change, usually at each renewal period.
- Index-linked crediting: interest is based on an index, but your money is not invested in it.
- Caps and participation rates: limit how much of the index gain you're credited.
- The 0% floor: index losses aren't credited to your contract, though surrender charges and rider fees can still reduce its value.
Pros and trade-offs
The benefits and the trade-offs, side by side
An FIA is not right for everyone. Here's what you get, and what you give up.
Potential benefits
- Principal protected from market-index losses, subject to the insurer's claims-paying ability
- Opportunity to earn interest linked to an index
- Tax-deferred growth until you withdraw
- Optional income riders designed to provide income for life
- A death benefit that may pass to your beneficiaries
Trade-offs to weigh
- Surrender charges, often for several years, if you withdraw more than the free amount
- Caps and participation rates limit your upside, and can change
- Income riders carry annual fees that reduce contract value
- Limited liquidity; this is long-term money
- Withdrawals of gains are taxed as ordinary income, with a possible penalty before 59½
- Not FDIC insured; guarantees depend on the issuing insurer
Income riders
Income riders, explained
An income rider is an optional add-on to an FIA. It's designed to provide a stream of income for life, starting when you choose, even if your contract value runs down, subject to the rider's terms and the insurer's claims-paying ability.
Riders usually carry an annual fee, often taken as a percentage. That fee reduces your contract value. The 'income base' a rider uses to calculate payments is not cash you can withdraw. We walk through the numbers so you understand what you're paying for.
Self-check
Is an annuity right for you?
An FIA may be worth a closer look if most of these sound like you. If they don't, that's useful to know too.
- You have emergency savings outside of the money you'd put in an annuity.
- You won't need this money for the length of the surrender period.
- You value protection from market-index losses more than full market upside.
- You want income you can plan around in retirement.
- You understand the surrender charges, caps and any rider fees before you sign.
The tool
Get a copy of Way of the Financial Warrior
Len Strickler's book covers five financial self-defense moves to help protect your retirement income. Request your copy.
Way of the Financial Warrior
Five financial self-defense moves to help you pursue retirement income, safety of principal and peace of mind. By Len Strickler.
We post a printed copy to you from our Fort Lauderdale office.
Who you’ll talk to
The licensed insurance agents for fixed index annuities
Juan Cabezas
Licensed Insurance AgentJuan has 37 years of experience, is licensed in life and annuities, and builds retirement strategies on principal protection.
Read full bio →Claudine Mesnil
Director of OperationsClaudine focuses on insurance solutions and works with Spanish-speaking clients.
Read full bio →John Petrucco
Licensed Insurance AgentJohn has 30 years in financial services and focuses on protecting accumulated wealth, so he can show where principal protection fits in your plan.
Read full bio →
As heard on Let’s Talk Safe Money®
Hear Len and Art explain it on the show.
Len and Art host the show on 610 WIOD. Watch more episodes in LSF University.
Watch full episodesQuestions
Common questions about fixed index annuities
What is a fixed index annuity and how does it earn interest?
A fixed index annuity is an insurance contract. Interest is credited based on the performance of a market index, up to a cap or participation rate, but your money isn't invested directly in the market. In years when the index falls, a 0% floor is designed to keep index losses from being credited to your contract.
Can I lose money in a fixed index annuity?
Your principal is protected from market-index losses, and guarantees are subject to the claims-paying ability of the issuing insurance company. You can still lose value in other ways: surrender charges apply if you withdraw more than the free amount during the surrender period, and rider fees reduce your contract value. That's why we review those costs with you before anything is signed.
What are surrender charges, and how long do they last?
A surrender charge is a fee for withdrawing more than the contract allows, or cashing out, during the surrender period. The period often lasts several years, and the charge usually declines each year. Most contracts allow a limited penalty-free withdrawal each year. Terms vary by carrier and product, so we show you the schedule for any contract you're considering.
What is an income rider, and what does it cost?
An income rider is an optional feature designed to provide lifetime income, subject to its terms and the insurer's claims-paying ability. It usually has an annual fee that reduces your contract value. The rider's income base is used to calculate payments and is not a cash value you can withdraw.
How is an FIA different from a variable annuity or a CD?
A CD is a bank deposit, FDIC insured up to applicable limits, with a fixed rate. A variable annuity invests in market subaccounts, so its value can go down with the market. An FIA is an insurance contract that credits interest linked to an index, with a 0% floor against index losses, but it is not FDIC insured and comes with surrender periods, caps and possible rider fees.
How are annuities taxed?
Growth in an annuity is generally tax-deferred until you take money out. Withdrawals of earnings are generally taxed as ordinary income, and withdrawals before 59½ may face an additional 10% federal penalty. Annuities held in an IRA follow IRA rules. This is general information, not tax advice for your situation; consult your tax professional.
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Important information. Fixed index annuities are insurance products, not bank deposits. They are not FDIC insured, not insured by any federal government agency, and not a direct investment in the stock market or any index. Guarantees, including protection from market-index losses and lifetime income from optional riders, are subject to the claims-paying ability of the issuing insurance company. Surrender charges may apply to withdrawals during the surrender period. Caps, participation rates and other crediting terms are set by the insurer and may change. Optional riders carry additional annual fees. Withdrawals are subject to ordinary income tax, and withdrawals before age 59½ may be subject to a 10% federal tax penalty. Product features and availability vary by carrier and state. This is not tax or legal advice; consult your tax professional.