Indexed Annuity Returns
Equity Indexed Performance Examples
Get a Quote »The charts and examples posted below illustrate certain equity indexed annuity investment account and fixed indexed life insurance policy performance over the last several years.
It is important to understand that these graphs are illustrations of past gains and not indicative of future performance. Investment returns can differ depending on when the policy was purchased, to which index(s) premium was allocated, term of the policy, and several other factors.
Monthly Averaging Strategy Example
The first graph illustrates a monthly averaging strategy, with a 1.5% asset fee, 100% participation rate and no earnings cap. In this example, the insurance company uses the value of the S&P 500 ® on the same date every month for one year, adds those twelve figures together, and divides the sum by twelve to determine the monthly average.
If the average number is higher than beginning value of the S&P 500 ® on the annuity's anniversary date, interest is credited to the account. The asset fee of 1.5% is withdrawn from the total and the remaining interest is credited to the investment. However, the asset fee is only accessed in years when the annuity return is greater than 1.5%. That is to say, the asset fee will never cause the annuity to lose principal or interest earned in previous years. The account cannot post a negative return in any given year.
Indexed Annuity Point-To-Point Strategy
The second graph illustrates a “point-to-point” strategy used to credit interest. This particular account has a predetermined cap or ceiling. Interest is credited based on the difference between a starting and ending value of the S&P 500 ® during a one year period. The starting point begins when the annuity is funded (or purchased) and is also referred to as the anniversary date. This strategy will “cap out” when the ceiling is reached. In certain market conditions the point-to-point can outperform other strategies, especially during volatile market cycles.
Additional Strategies and Indexes
The two example graphs above only represent two of many possible methods used to credit interest in an equity-indexed annuity account. Other indexed accounts calculate interest based on a high water mark, a monthly cap, multiple index strategies, uncapped strategies, or one of several others available.
Almost all indexed annuities will have several interest crediting strategies to choose from in the portfolio. Accordingly, these results are not indicative of how all equity-indexed annuities performed during the same time period. Many accounts use the S&P 500 as an index barometer, but will also offer the NASDAQ, Dow Jones, Russell 2000, Bond indexes, and/or indexes tied to foreign exchanges in Europe and Asia.
Optional Fixed Interest Account
The examples above also assume that no funds were allocated to the annuity's fixed interest investment account. Many annuity owners choose to allocate a portion of their premium to the optional fixed investment account to provide fixed interest when the overall market is not performing well, such as the decline witnessed in 2000-2002 and 2008-2009. Each year, the owner can switch all or a portion of their funds between the various account options without cost or penalty in most indexed annuities.
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In summary, equity indexed annuities can be especially valuable for those looking to protect and preserve their assets without having to sacrifice reasonable gains in their portfolio. The given examples highlight this strategy by demonstrating the high yielding potential of these investments during bull market years and the security they provide during significant market downturns.
We represent dozens of carriers providing hundreds of indexed annuity investments for our clients. Contact us to learn more about the many options available for your retirement and investment accounts.
