Annuities have been around since the days of The Great Roman Empire. Used during the historical monetary ages as an income for life guaranty. The purchaser would trade a sum of money or a series of deposits/premiums for a later guaranteed income stream.
Today’s annuities are used in the same way, but continue to adapt to meet consumer needs and changing financial markets. Annuities have been and will continue to be a revolutionary retirement planning option with adaptability of its guarantees at it core.
Accumulation of Principal
Numerous highly rated annuity companies have brought the retirement community and retirement savers alike a series of products designed with the foundation of accumulation of principal.
Fixed index annuity companies use external interest crediting methods with index options that allow for uncapped growth potential. Many of the products are showing historical data to back its accumulation potential.
The rates I’ve seen have been in the range of 5.25% to 9.7% on 10 year historical illustrations. Over the same period non-accumulation driven products averaged in the 3 – 5% range. The reason for this is the capped growth. Although federal interest rates have risen and so have annuity rates the standard fixed index annuity has risen but not by leaps and bounds.
This is why using an accumulation type of fixed index annuity is preferred for receiving the highest upside in the fixed type annuity world.
Rivaling mutual fund and stock returns is really attractive when you consider you have contractual guarantees protecting your money. The stock market (New York, NY.) gives unlimited upside but with the opposite of no protection and no guarantees, putting investors in a position of taking some serious losses.
The Trade Off
Fixed index annuities are a contract between the purchaser and the annuity/insurance company. They are not fully liquid, whereas of course, the stock market is 100% liquid. With these type of annuities 10% withdrawals are available every year, usually after the first year.
In addition, there are certain life events you may go through that do allow most index annuities to become fully liquid. Nursing home, home health care, terminal illness, death are all reasons that would allow for 100% liquidity. These are available during the surrender charge period. However, most index annuities have these early withdrawal charges in place from 5-14 years, so eventually your they do become liquid anyway.
As compared to the unlimited choices of the stock markets, choices with Fixed index annuities are limited. Although there are literally hundreds and hundreds of these available for purchase, your needs, wants and concerns will narrow that down to a few products. Many of those are going to be inferior to the dozen best performers and narrowed down even further you can literally compare annuity to annuity, rates to rates, riders to riders and determine the cost of fee’s associated with riders and or the accumulation interest method you choose or are recommended.
All in all it’s safe to say that annuity companies have always adapted to different economic environments, and alike to consumer demand. The end result, is an annuity market and its products that are more, and more, geared toward the consumers demand for strong accumulation during favorable market conditions.
For questions, or if you’d simply like to see how an accumulation type of annuity may fit your goals, feel free to call or email our offices.