Fixed and Fixed Index Annuity

What is an Annuity?
An Annuity is a way to build wealth using the power of compound interest, a series of payments or a lump some to accumulate sustainable or steady income after retirement.
Stepping Stone Financial focuses on two different products for their customers which are the fixed annuity and fixed index annuity. Annuities can be an excellent addition to someone’s retirement strategy and may offer more benefits than other retirement saving vehicles such as 401(k)s, 403(b)s, CDs, Roth IRAs, and IRAs.

What’s the Difference?

Fixed Annuity: In the easiest way possible, an annuitant/customer has a set minimum amount, according to which company. The annuity owner has options for a short term or long term annuity. the amount grows at an incline rate over the course of such time. This Annuity can be an option for those who want to grow without being affected by the stock market, and is considered one of the safest products because of it’s guaranteed rates.

Fixed Indexed Annuity: Like the Fixed Annuity, the annuitant/customer can put in an amount to which company they decide to go with, and has an option of short term or long term annuity. It offers safety of a fixed annuity but can also grow based off of the performance of the stock market index, such as the S&P 500. Fixed Indexed Annuity is affected by the performance stock market index is up. When the stock market is down, your Fixed indexed Annuity stays at the amount that it has earned without loosing what you have gained. When the index is up, you could earn more interest up to the cap set by the product or company.

Principal Protection:

• Many annuities offer your principal the protection it needs, and ensures that you don’t lose your initial investment during the downturns of the market.
• Annuities are ideal for those who are cautious about losing their investment and savings from market volatility. 

Fixed Annuities:

Fixed Annuities, a financial product offered by insurance companies that provide guaranteed returns on the money that you invest. Here is an easy-to-understand breakdown of what it can potentially do for you or someone who is looking to invest in one.

 Key Features of a Fixed Annuity:

Guaranteed Interest Rate:

• Insurance company’s guarantee a fixed interest rate on your investment for a specific period typically ranging 1 to 10 years. 
• This means you can know exactly how much money that will have each year.

Tax-Deferred Growth:

• When you invest into a fixed annuity the money grows tax deferred, which mean you don’t pay taxes on the interest until after you withdraw it.
• This will help your investment grow faster since you’re losing any of your money each year.

Income Options:

• Fixed Annuities can provide you a steady income stream while in retirement. You can choose how to receive your payments such as monthly, quarterly, annually or in a lump sum.
• These payments can for a set number of years or it can for the rest of your life depending on the option you choose.

Principle Protection:

• Your initial investment which is known as principle is protected from the fluctuations of the market. Unlike stocks and mutual funds, it’s value won’t go down because of the market downturns.

Flexible Withdrawal Option:

• The fixed annuity owner or annuitant can often access a portion of their funds without penalties, although there may be some restrictions.
• Be cautious of surrender charges if you withdraw more than the recommended amount during that period, typically in the first 5-10 years.

Benefits of Owning a Fixed Annuity:

Predictable Income:

• Knowing exactly the amount of income that you will receive can make it easier to plan out your budget and manage your finances in retirement.

Low Risk:

• Fixed annuities are considered a low risk investment since they offer guaranteed returns and protects the principal.

Tax Advantages:

• By deferring taxes, you can actually maximize the growth of your investment over the course of time. This can be especially beneficial if you wish to be in the lower tax bracket during retirement.

Estate Planning:

• You can have a beneficiary to receive the remaining funds if you pass away before the annuity is depleted, providing financial security for your loved ones.

Considerations:

• Surrender charges:

Be cautious of potential penalties for early withdrawals during its surrender period.

• Inflation Risk:

Fixed annuities may not keep up with inflation, which could potentially lower your purchasing power over time.

• Limited Growth Potential:

While fixed annuities offer stability, they typically provide lower returns compared to more volatile investments like the stock market.

Fixed Index Annuity

Fixed Index Annuity (FIA): offers a combination of guaranteed returns and potential for higher interest based on the market index. Here is an easy-to-understand breakdown of what a fixed index annuity.

Key Features of a Fixed Index Annuity:

Interest tied to a market index:

• Interest the annuity owner earns is linked to the performance of a specific market index, such as the S&P 500.
• The owner does not invest directly in the stock market, but the annuity’s interest is based on the performance index.

Guaranteed Minimum Interest:

• Fixed Index Annuities (FIA) ensures you earn some interest even if the index performs poorly.
• This protects the investments principal from market losses.

Tax-Deferred Growth:

• Like other annuities, the money in an FIA grows tax deferred, meaning you don’t pay taxes on the interest.
• This can help your investments grow faster since you are not losing money to taxes each year.

Potential for Higher Returns:

• Since the interest is linked to a market index, FIAs can offer higher returns than a traditional fixed annuity.
• There’s usually a limit or cap on the amount that you can earn in a given period.

Income Options:

• Provides a steady income stream in retirement, with options to receive payments monthly, quarterly, annually or in a lump sum.
• Payments can be set up to pay the owner for the rest of their life.

Principal Protection:

• The initial investment is protected, even when the market index is performing poorly, even during the downturn of the market.

Benefits of Owning a Fixed Index Annuity (FIA):

Growth Potential with Protection:

• The annuity owner can benefit from potential market gains without the risk of losing their principal investment. The guaranteed minimum interest ensures that they can always earn something.

Predictable Income:

• The annuity owner can know that they have a steady income and makes it easier to manage their financial budget.

Tax Advantages:

• The tax-deferred growth allows your investment to grow faster since you not paying taxes for the interest earned every year.

Flexible Withdrawal Options:

• The owner can access a percentage of the money without penalties every year although there may be some restrictions.
• Be cautious of surrender charges if you withdraw more than the allowed amount during the surrender period.

Considerations:

Caps and Participation Rates:

• FIAs may have caps on the maximum interest the annuity owner can earn and the rate of participation.

Complexity:

• FIAs can be more complex from the traditional fixed annuity, it is important to understand how the interest calculations work.

Surrender Charges:

• An annuity can face early withdraw fees during the surrender period.