# Fixed Indexed Annuity



## MaryZPA (Aug 16, 2015)

My financial advisor believes the market is overvalued at the moment, and he's had a larger-than-usual portion of my retirement savings in cash recently. Now, he's suggesting moving a portion into a  'fixed indexed annuity' with Nationwide. I've been reading and trying to more fully understand this option, but I'm feeling overwhelmed. I'd like to be a somewhat knowledgable investor, but at the moment, my head is spinning. Does anyone have thoughts on these fixed indexed annuities, or can anyone direct me to a good source for clear information? Thanks!


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## SeaBreeze (Aug 16, 2015)

I know little about these things, but here's a page that may make things a bit clearer for you.  http://www.cbsnews.com/news/six-questions-to-ask-before-buying-a-fixed-indexed-annuity/


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## AZ Jim (Aug 16, 2015)

Mary what is that in your avatar?


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## MaryZPA (Aug 16, 2015)

It's a photo of a hummingbird in my hands.


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## Don M. (Aug 16, 2015)

MaryZPA said:


> My financial advisor believes the market is overvalued at the moment, and he's had a larger-than-usual portion of my retirement savings in cash recently. Now, he's suggesting moving a portion into a  'fixed indexed annuity' with Nationwide. I've been reading and trying to more fully understand this option, but I'm feeling overwhelmed. I'd like to be a somewhat knowledgable investor, but at the moment, my head is spinning. Does anyone have thoughts on these fixed indexed annuities, or can anyone direct me to a good source for clear information? Thanks!



Earlier, this year, I did some in depth research on Annuities.  I was thinking about a time when I can no longer stand the ups and downs of the markets.  I spent a fair amount of time browsing the Internet, and spoke to agents representing MetLife, Pacific Life, and MassMutual.  After many hours of reading, and meeting with these agents, I came to the conclusion that Annuities are a Great Option...FOR the Insurance Companies.  I was unable to find Any which could match a fairly conservative Mutual Fund portfolio.  They take the clients money, make a good profit in the markets, and return a relatively modest portion back to the client.  It would be like investing in a mutual fund with ridiculously high fees.  

To someone just starting to look at these policies, I would recommend doing a search on "Annuity pros and cons"...and prepare to read dozens of pages of ideas about the good and bad points of an annuity.  

I may change my mind at some point in the future, but for now, I am unwilling to take the "Pay Cut" an annuity would offer.


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## QuickSilver (Aug 16, 2015)

I believe this is an annuity that Guarantees you a set amount of income per year..  The amount is adjusted up every year and cannot go lower no matter what the market is doing.  It may not go up every year... but it will not go down either.  I have a little bit on one of those...


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## AZ Jim (Aug 16, 2015)

MaryZPA said:


> It's a photo of a hummingbird in my hands.



Ahhhhh Great.  I couldn't tell these pics are too small for old eyes.  I feed them too, there are 3 or 4 regulars here off and on all day.


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## Lon (Aug 16, 2015)

I have personally sold many different types of annuities during my financial career including Fixed Indexed Annuities. For individuals that need or want Predictable Guaranteed Income Now or Later they can be an excellent choice. I would however look at some other companies for a comparison, Mass Mutual for example.


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## QuickSilver (Aug 16, 2015)

I believe mine is Prudential.


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## Lon (Aug 16, 2015)

I agree with Don about the Conservative Mutual Fund Portfolio but here again the KEY is GUARANTEES, and only the ANNUITY will give you the guarantee.


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## oldman (Aug 17, 2015)

As with any investment, do your homework. There is a ton of information on the net about annuities. Questions that I would ask before buying:
1. What is the rate of return?
2. Is this a fixed or a variable rate?
3. How long do I need to hold it before I can begin to cash it in, in case of an emergency?
4. What is the penalty rate for early surrender?
5. Can I lose any part of my principal? (Probably, yes, if you cash it in before the surrender date.)

I used to buy a similar instrument called a GIC (Guaranteed Investment Contract.) I used these to hedge my losses in the markets. At one time (maybe back in the 80's), I made as much as 12%, but it was very temporary. I had a variable GIC, which I bought from my credit union. I would purchase the GIC from the CU, then move it into an retirement IRA. I really had no choice because that's the way the IRS had the rules set up at the time. GiC's could only be bought in 401(k)'s and tax deferred savings from a sponsored CU.   

Annuities, overall, are a good investment for seniors that may need or want an extra monthly income. But just like any other investment, keep an eye on it.


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## Bullie76 (Aug 17, 2015)

Don M. said:


> Earlier, this year, I did some in depth research on Annuities.  I was thinking about a time when I can no longer stand the ups and downs of the markets.  I spent a fair amount of time browsing the Internet, and spoke to agents representing MetLife, Pacific Life, and MassMutual.  After many hours of reading, and meeting with these agents, I came to the conclusion that Annuities are a Great Option...FOR the Insurance Companies.  I was unable to find Any which could match a fairly conservative Mutual Fund portfolio.  They take the clients money, make a good profit in the markets, and return a relatively modest portion back to the client.  It would be like investing in a mutual fund with ridiculously high fees.
> 
> To someone just starting to look at these policies, I would recommend doing a search on "Annuity pros and cons"...and prepare to read dozens of pages of ideas about the good and bad points of an annuity.
> 
> I may change my mind at some point in the future, but for now, I am unwilling to take the "Pay Cut" an annuity would offer.



Good advice. As others have said, if you need a predictable income stream they are a good tool. If you don't, you can do better with a balanced portfolio. And when the salesman throws out percentages that you will receive, don't be mislead into thinking that is the return on your investment. Most of it is a return of principal with a little interest. Also get quotes from other companies. You certainly want a highly rated company.

The only reason I might buy one is just to protect myself from blowing my money on some investment scheme when I'm old and not thinking clearly. Having an income stream from SS and a fixed annuity will make sure I have some money coming in. I have a friend who's parents blew their savings at a casino. I knew his parents and they were as conservative and typical as most, but they got bored late in life and played the $5 slots. Now his mom is in a nursing home w/o much money to work with.


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## gym4866 (Sep 30, 2015)

IMHO..... stay away......to many moving parts.  your head will be spinning more.


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## QuickSilver (Oct 1, 2015)

gym4866 said:


> IMHO..... stay away......to many moving parts.  your head will be spinning more.



I certainly don't agree...  I have one...and I get a VERY nice predictable source of income from it.   Nothing moving or spinning... It just shows up in my account.


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## oldman (Oct 1, 2015)

QuickSilver said:


> I certainly don't agree...  I have one...and I get a VERY nice predictable source of income from it.   Nothing moving or spinning... It just shows up in my account.



Do you pay capital gains on the "take away" money, or in other words, the gains?


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## gym4866 (Oct 1, 2015)

my experience was'nt so good, but this was about 5 years ago. sounds like you found a better one than i had,or perhaps a better advisor.


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## mathjak107 (Jul 15, 2016)

these are very complex products and i do not recommend them . they will not be what you think you are getting . index annuity's are a poor proxy for an equity investment .

you get no dividends , which can account for 25% or more of the markets return , you have caps and participation rates that limit what you can gain .

once the high fees are thrown in there is little left for you .

if you really want an annuity get a simple spia (single premium annuity) . 

do not even consider any annuity until you delayed social security . that is the best annuity for the money you can buy .

for what you would pay out  to delay ss you can't find an inflation adjusted annuity paying anywhere near what ss pays out .

an spia is like buying a cd . if you like the payout rate that is your deal . there is nothing else to know .  be especially leary of anything that guarantees you a minimum growth rate . odds are that too is not what you think you are getting .

that guarantee is on a phantom account that is only good for annuitizing an income and typically you can never access that money except as a fraction of a percent a year increase in draw .

i just reviewed a variable bond index annuity from prudential that guarantees you a minimum of 5.50% a year in growth or what the bond index does , which ever is higher . the fees are almost 3% so there is no way a bond index will beat the 5.50% guarantee minimum  .

while it does grow your balance by that 5.50%  for every year you delay annuitizing and delay taking money  , you only  gain 1/10% more in a draw rate a year  off that balance .

delay taking money for ten years and you get an extra 1% in draw rate against that balance that grew by 5.50% a year .

you can never take that balance , ever . only your actual account balance is your money , less fees and commissions .


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## mathjak107 (Jul 16, 2016)

perhaps a closer look at the prudential bond index annuity with a 5.50% minimum growth rate will help you all understand that what you think you are getting is not really the deal  most of the time .

so in this case we have an annuity linked to a bond index . so your actual account balance  that you can take or pass to heirs is based on that bond index .  that return though is subject to almost 3% in fees and commissions so for the most part it is sales fluff . odds are you will not beat the minimum growth rate promised at 5.50% a year .

so lets look at the guaranteed rate .

if you give them 100k  at the end of year one you have 105,500 and have a choice , you can let it grow or you can start taking a 4% draw off it which is what they allow first year  .

so lets let it grow for 10 years .

each year you delay taking money you gain another 5.50% and you gain 1/10% in income a year added to your draw rate .

so 10 years later we have 180.209 .00 dollars . our draw increased from 4% to 5% .  .  that 180k is never yours . it is only a phantom balance that you can get 1/10% of 5.50% a year out of . there is no other way to access that money in the phantom account . it is only used as a base for annuitization . only your actual account balance is yours which is based on the index less fees .  

just about every annuity that has an index or guarantee's is structured this way .



here is a nice chart of the prudential indexed  annuity done by annuity gator . you will never see a spread sheet like this from an annuity company . it really tells you what is going on under the hood .

you can see if you start  the annuity at age 55 and start drawing at 65 , if you   live to 90 your actual return is about 4.50% never actually hitting a 5.50% guaranteed growth rate  .  it takes about 21 years  to first see a .69% return .  hardly the deal you thought you were getting is it ?

this is why these products are not good choices . they are just to difficult to look under the hood and know just what you are getting . you have to create a spread sheet like this and analyze it yourself as you will never see a sheet like this from them .


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## Myquest55 (Jul 16, 2016)

Everyone told us to STAY AWAY from annuities and we thought long and hard about that.  However, I knew that after so many years of saving and handling our money (DH was away a lot) that I would NEVER be able to take it out without a panic attack.  So, we ended up with a couple of annuities so I could count on an income stream.  I know there are fees but we pay them to manage the account and make sure we have income until we die, and if there is any money left when we do, they go to beneficiaries.  That said - we did not put ALL of our savings into an annuity but they are part of our retirement plan.


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## mathjak107 (Jul 16, 2016)

annuity's represent a very large varied bunch of products . some like indexed annuity's can be expensive , complicated products that fall short of what you think you are getting .

some like immediate annuity's can be excellent products when used in conjunction with your own investing for inflation adjusting , growth and heirs .

in fact the highest success rates come from an integrated strategy using your own investing , immediate annuity's and permanent life insurance .

the ability to pass tax free money to a spouse with no rmd's or taxes is very powerful .

especially with so much linked to taxable income , like getting your ss taxed and what you pay in medicare premiums .  don't forget when a spouse dies the other spouse now has to file single and with rmd's that can be painful .


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