Investing With A Variable Annuity

Annuities can be great methods to plan for retirement

, and it is essential that they are contemplated when constructing a monetary plan. There are two main categories of annuities, a fixed annuity and a variable annuity. A fixed annuity uses a stream of repaired payments to the annuitant based on an investment, while a in variable annuity the cash flow stream can vary. One of the many popular types of variable annuities is an equity indexed annuity. This is an annuity whose returns can vary depending on the return of a benchmarking equity index (such as the S&P 500).

It is crucial to keep in mind, an equity indexed annuity has characteristics of both a variable and a fixed annuity and the returns are conditional on the benchmark index chosen. Lots of will posses a stated minimum return, meaning your downside risk is minimized but not gone completely. They provide a minimum guaranteed interest rate to the owner, which is then combined with an interest rate which is linked to a stock market index. When the stock market is rising, these categories of annuities give far superior returns than traditional fixed annuities.

Another vital aspect to keep in mind is that any guarantee of return is only as good as the organization constructing the guarantee. These are not stated by any governmental agency, and should the company who issues the software go out of industry or suffer financially, it's conceivable that the stated minimum return will notbe achieved. Each and every equity indexed annuity will contain a participation rate, and many additionally possess an interest rate maximum cap. The participation rate is the amount of market appreciation that your annuity will participate in, such as 80%. If the stock market rises 10%, your annuity will participate in 80%, or 8% of that gain. An interest rate cap is the maximum interest rate that will be paid, no matter what the return of the stock market it is indexed to.

by: Chang Huisenga

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