Index Annuities

Index Annuities

Index Annuities

Index Annuities

Are index annuities a good investment? My job is not to give you buy or sell advice concerning this product, but deliver and let you evaluate it.

You must determine if you are a conservative investor or a gambler. If you are a gambler, then I would stock with stock market. If you're a conservative investor and have lost money in the past, this may be wise investment direction.

Index annuities (often referred as "equity index annuities") are not a security, but a fixed annuity. These products allow you to participate in a market index return without the risk of loss, unless you liquidate your account within the surrender period.

Many insurance agents selling index annuities bend the truth concerning what your likely return will be. Currently you can expect a 4% to 4.9% returnand this is not guaranteed. It all depends on the ceiling cap for your returns. If you are watching T.V. and see a return of 8% for an index, you will likely get 4% (not counting fees and expenses).

Another wishy-washy bending of the truth by insurance agents is the income-rider attached to the product. I was just looking at an advertisement for an 8% guaranteed income stream using an income rider. Wow! What a deceptive omission of the truth.

First, the income payout is not guaranteed at 8% for everyone. Second, the income payout is based on your age. Example: If your age is 55 to 59, your payout for life is 4.5%. If your age is 60 to 64, your payout for life is 5%. If your age is 65 to 69, your payout for life is 5.5%, and so on. The majority of companies have very similar payout guarantees for these age ranges.

Let's say your age is 60. Your principal investment for an income rider is $100,000. Your payout guarantee is 5%. Let's assume your life expectancy is 20-years. Let's assume there are no annual fees or any unscheduled withdrawals. So your annual income based on a 5% payout on $100,000 over a 20-year life expectancy is $100,000 ($5,000 x 20-years).

But, since your initial principal is $100,000 and your payout is $100,000, your recovery is $0.00. Your spouse gets nothing! What if you need additional money in the future? You have nothing. An income-recovery equation (go to my website for further information) can earn $71,854 (net after taxes), plus recover an additional $100,000 for a total (estimated) $171,854 over a 20-year period (at 4% growth rate) on $100,000 of principal. That's 71.85% more money in retirement!

Over-all the index annuity is a good investment. You can get better than expected returns than traditional fixed annuities. If you think long term, this may be wise investment to evaluate in greater detail.

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