The Cash Flow Clock: For Retirees - Book - Page 83
The Cash Flow Clock
Fixed Index Annuities (FIA) are like index CDs.
They are guaranteed not to lose but are not
guaranteed to grow. Their growth depends on what
index is being used. If the index grows, the annuity
grows. If the index loses, the annuity does not lose.
The insurance company does not credit all of the
upside while protecting from the downside. Growth
is limited with either a cap or a participation rate (or
both). If the market is down, we don’t lose. Prior
year growth becomes part of the guaranteed principal
at the end of each year and is protected from future
losses.
Recently, insurance companies realized that not
everyone needs income for a lifetime. Some are
simply looking for growth with downside protection.
MYGAs and FIAs are great alternatives to CD and
Index CDs. They also make attractive alternatives to
bond funds, especially in a rising interest rate
environment.
Annuities have a contract term which can range from
a couple of years to 10 years or longer. During this
contract period, withdrawing our funds may result in
a surrender charge. This surrender charge can vary
from one company to another but is usually close to
the number or years left in the contract. For example,
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