The ABCs of Fixed Index Annuities

May 25, 2021

Can a fixed index annuity help your retirement plans?

I’m here to share with you the advantages and costs of using a fixed index annuity to create income after retirement.

If you started thinking about creating income for retirement, chances are you’ve heard about annuities. Annuities are used to create income to help people maintain their lifestyles after they retire. While there are several types of annuities designed to provide income in retirement, fixed index annuities have a higher potential for growth without being directly exposed to the stock market. Here’s what you need to know.

First off, what is an annuity?

Basically, an annuity is a contract between you and an insurance company where you pay a premium in exchange for a variety of guaranteed payout options for a set period of time or for the remainder of your life.

There are two phases with annuities

First is the accumulation phase, where the contract value accumulates interest earnings, meaning it grows over time – and then the distribution phase, where income is paid out from the annuity to you, generally while you’re in retirement.

Annuities are insurance contracts

They are different from savings accounts, investments and other types of insurance policies because they are the only financial product that can guarantee income as long as you live. There are several different types of annuities, but what we want to talk about today and what you may want to consider are, fixed index annuities

Fixed index annuities offer a solution for generating reliable retirement income. They are attractive to those preparing for retirement because of the principal protection they provide and the potential to earn higher interest than other investments — in other words, you can get some of the benefits of the stock market without as much of the risk.

So, how do fixed index annuities work?

A fixed index annuity earns interest on your principal, up to a certain amount, that is based on a market index, like the S&P 500. When you buy a fixed index annuity, you do not own any shares of stock or participate directly in the stock market. Rather, you own an annuity contract. They credit interest to your annuity based on a formula determined by the insurance company and outlined in your contract. Essentially, fixed index annuities offer protection of principal from market losses while providing the potential for higher interest earnings than traditional fixed annuities.

Using the S&P 500, the chart shown here shows a hypothetical scenario of how an investment of $100,000 would have performed if invested in the stock market versus through purchasing a fixed index annuity. In this scenario, the fixed index annuity had a 50% participation rate, meaning that if the market performed at 10% growth, the money that the annuity owner allocated to that indexing strategy would earn 5% interest.

Notice that in the economic downturn in 2008, the S&P 500 dropped significantly, from approximately $119,500 to $73,500, while the fixed index annuity stayed flat. So, while it didn’t gain any additional interest that year, it also didn’t lose any principal or any of the previously gained interest to market loss. So, if you’re looking to guarantee a portion of your retirement income, a fixed index annuity may be worth considering.

FIA vs. Stock Market Performance in a Volatile Market

Now you may be wondering, is purchasing a fixed index annuity right for you? Ask yourself this, what is your goal for the money you would use to purchase your annuity? Protection from the market? Growth? Both? How much risk are you comfortable with? Additionally, there are several potential costs and limitations to think about before purchasing a fixed index annuity like Surrender Charges, Commissions, Rider Fees, Caps.

The last question to ask is, should you consult with a financial advisor to help figure out if a fixed index annuity is a right fit for you? I think that answer would be… yes! A financial advisor can analyze your potential retirement income and your financial goals to help determine if you should set up a fixed index annuity, or a combination of that with other investment products, or even build a completely different income strategy that works for you.

If you don’t have a financial advisor, don’t worry. You can reach out to us. At E.A. Buck Financial Services, we are available for complimentary meetings or 15-minute phone consultations to help you. Whether you become a client or not, we’re happy to answer any questions you might have or walk you through any “what if” scenarios. Visit us at to find out more about our financial services.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 902028- 5/21.


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Honolulu HI 96813,


The views and opinions expressed by the writes are their own, and do not necessarily express the views and opinions of E.A. Buck Financial Services, MAS, or AEWM. The information and opinions contained in any of the material requested from this website are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. They are given for informational purposes only and are not a solicitation to buy or sell any of the products mentioned. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. E.A. Buck Financial Serivices and its advisors cannot offer tax or legal advice. Please speak to an appropriate professional for any tax or legal questions you may have.


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