Can Index Annuities Offer Peace of Mind and Guarantee Income For Life?

By Gregory Sessa

If you owned stocks or mutual funds at the start of the 21st century, you no doubt felt the financial pain of the market’s crash. Between the stock market’s peak in March 2000 to its subsequent bottom in October 2002, and then the drop again in 2008 and 2009, the combined market value of companies traded on the New York Stock Exchange and NASDAQ fell tremendously.

While the stock market has recovered to a degree, that’s little solace to those whose portfolios were decimated by the market’s drastic drop. Many consumers who are especially risk averse, such as retirees and those nearing retirement, are wary of ever returning to the stock market, given its inherent risk.

During the same time as the stock market freefall, nearly all consumers who purchased a relatively new type of fixed annuity, called an index annuity, did not lose a dime of their original principal. This prompts consumers to ask, “how is this possible?”

The reason index annuity owners can feel secure about not losing their principal is because 100 percent of the principal in an index annuity is backed by the financial strength of the issuing insurance company. Congress mandates that insurance companies back your money, dollar for dollar, in capital reserves. FDIC insurance in contrast has less that $2 in reserve for every $100.00 in your account! Index annuity owners earn a guaranteed minimum rate of return and potentially can earn more, depending on their annuity’s index linked rate of return.

The issuing insurance company links the index annuity’s interest rate to a select external index. Most index annuities have interest returns linked to the S&P 500 or the Dow Jones Industrial Average and some are linked to other indices. The index-linked interest rate earned is usually a percentage of the growth of the index. It is important to note that index annuities are not securities, nor should they be considered a direct alternative to securities.

Knowing that consumers may occasionally wish to tap the funds in their accounts for emergencies or other reasons, most index annuity issuers allow some sort of annual withdrawal, up to a set amount without assessing withdrawal charges. A feature in the newest annuities today can guarantee income that the client can never out live no matter how the market moves; up, down, or side ways. The income is guaranteed for life without annuitization and the amount left over in the contract value will pass to their heirs.

Annuities are sold in amounts as little as $2,000 to $5,000 and offered by some of the most highly ranked and financially sound companies in the insurance industry. Index annuities also are unique because purchasers do not pay any up-front sales charge.Your insurance agent is compensated solely by the issuing insurance company. When you buy an index annuity, 100 percent of your principal goes directly into the contract. Some even offer a bonus of up to 10% so 110% of your money is working for you from day one.

If you are interested in diversifying your assets with guarantees of safety and security, lifetime income you cannot out live, index linked gains with unique features, and peace of mind to let you sleep at night, the index annuity is right for you.

Greg Sessa has been in the financial services industry since 1986. In working with hundreds of clients over the years he has had the pleasure of seeing many of them well on their way to their financial goals. He is pleased to say that not one of his clients has ever lost money in their retirement account due to the volatility of the stock market, and he is not about to start with yours!

To learn how you can protect your retirement assets Greg may be reached at Preserving Your Profits.