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Indexed Annuities

Indexed annuities are a type of annuity whose interest rates are connected to an equity index, such as the S&P 500. We often refer to indexed annuities as blends of fixed and variable annuities. They perform well when the stock markets perform well. 

Like variable annuities, indexed annuities are complex, and they can be hard to understand. Don’t worry — our agents will simplify them for you.

How Do Indexed Annuities Compare to Other Annuities?

Indexed annuities are less predictable than fixed annuities. The payment amount that you get will depend on the performance of a certain stock index, like Standard and Poor’s (S&P) 500. But even if the market does poorly, indexed annuities have a guaranteed, minimum return.

What Are the Advantages of Indexed Annuities?

Indexed annuities have the chance of higher returns without the threat of losing your money. Other benefits include: 

  • When stocks in your index increase in value, the value of your contract increases.
  • The added increase in earnings may act as a hedge against inflation. 
  • You don’t lose money if the stock market underperforms. 
  • Index gains are locked in. 
  • May offer better rates than certificates of deposit.

The amount of payments you receive will have a certain ceiling as well as a certain floor that they can hit.  

Index Annuity Yields

Your index rate will be calculated depending on the provisions of your contract. The estimation may usually involve 3 elements:

  • Participation rate
  • Spread/margin/asset fee
  • Interest rate caps  

How Do Indexed Annuities Work?

According to FINRA, there are many procedures to measure the change in the index over the period you have the annuity:   

Annual Reset – Compares the index shift from the beginning of the year to the end.

High Water Mark – Analyzes the index value at different points. Takes the highest values and compares it to the point at the start of the contract. 

Point to Point – Compares the shift in the index rates at two predetermined points in time. It can be the start and end of the contract period.

Index Averaging – Some annuities average the daily or monthly value of the index.

Cornerstone Senior Advisors Can Help

Whether you’re interested in indexed, variable, or fixed annuities, Cornerstone Senior Advisors can help you decide what’s best for you. Call (316) 260-3331 for a quote or for more information.