Here, the National Association for Fixed Annuities (NAFA) will run a monthly Annuity Facts column, containing essential information about fixed annuity product features, regulation, tax issues, and industry news.
We invite you, the reader, to send us any questions that you often hear — or that you may have yourself. Submit your questions to [email protected] with the subject line “Fixed Annuity FAQ” to have your problems answered here.
To get us started, here is a quick list of the most common questions NAFA receives from the media on indexed annuities.
Q: I’ve been told that I don’t get all the gains from stock market appreciation. Fixed indexed annuities can limit the maximum percentage upward in any given year. Why?
NAFA: Fixed indexed annuities offer the ultimate guarantee of savings protection, along with higher interest crediting potential than other safe alternatives. When looking at fixed indexed annuities, don’t just consider what happens in the years that index is up — a major part of this product’s value is what happens in the years the index is down.
Elimination of index losses is a very important safety net for retirees on a fixed income, for those with limited time to recover from market losses, or for those who simply do not want any market risk in their retirement savings. Because of the strength of their guarantees, fixed indexed annuities cannot — and are not intended to — deliver the entire upside potential of the market index.
Q: Why don’t fixed indexed annuities include the dividend income of the underlying index?
NAFA: Again: Because of the strength of their guarantees, fixed indexed annuities cannot and are not intended to deliver the entire upside potential of the market index. While annuities could credit some portion of the index price increase and dividend, it has become customary within the annuity industry to exclude the dividends and offer a higher portion of the index price increase.