History of a Fixed Index Annuity or FIA

Index annuities were first introduced in the U.S. about 20 years ago as an alternative to mutual fund^{^}s, allowing growth from stock market indexes with to principal in loss years. The first offerings of these annuities were readily accepted and caught on quickly. The rest is history. Cash inflows to fixed index annuities have exploded from approximately 3 billion in 1997 to over 26 billion by 2008. During the financial crisis of 2008-2009, money flowed into these annuities so fast that many carriers actually stopped taking new clients. According to the Wharton study, many fixed annuities that incorporate indexing have proven (to the critics’ surprise) to give higher returns over several recent five and ten year periods of time than the index benchmarks they are crediting from.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

Did you know that a fixed index annuity, index annuity, ratchet annuity or equity indexed annuity is actually and simply a fixed annuity with an optional or an extra feature? And, in addition to having a fixed interest rate choice, it also has an optional interest crediting method that uses an external market index to determine the amount of interest to be applied after a specified term of typically one year. Important things to consider when choosing a fixed indexed annuity are:

• High independent ratings for safety concerns
• High interest crediting for growth
• Generous payouts for income
• More liquidity for emergency cash needs
• Shorter surrender periods or lower surrender penalties
• Additional benefits such as payouts for long-term care, terminal illness and death benefits
• Flexible income riders that allow both lifetime income and the ability to pass any remaining account value to heirs
• More indexing options for higher growth potential
• Better indexing strategies for higher growth potential
• Higher cap rates, higher participation, higher averaging
• A larger bonus
• No or low annual fees
• Shorter vs. a longer reset to grow and protect accumulation
• High water mark vs. annual point-to-point
• Higher deferred growth of the income base
• Availability of the income base for a death benefit
• Joint survivor income **guarantees

There are many considerations that may be relative to your situation. What fixed index annuity works best for a 50-year-old single mother may be a total disaster for you and your wife. It is important to understand that no one fixed index annuity will give you everything you need or want. So, it is necessary to prioritize your needs. List all of your preferences and needs and then prioritize them on a scale of 1-10; 1 being the least concern and 10 being the greatest. Now start the process of comparing rates and options from top companies until you find the best overall fixed index annuity to address your unique situation. Utilizing a financial planner/educator can be of great value once you have familiarized yourself with the basic aspects of fixed index annuities.

Fixed Indexed Annuity Benefits

• Safety: Backed by highly rated state regulated insurers
• Tax Deferral: Tax-deferred growth
• Higher Return: Better interest rate potential than CDs and standard fixed annuities
• Life Insurance: Death payout **guarantees
• Liquidity: Flexible withdrawal privileges
• Unlimited Contributions, unlike IRAs and 401(k)s
• Inheritance: Pass money directly to heirs bypassing probate
• Lifetime Option: Income you can’t outlive (Annuitization or a Living Benefit Rider)

Fixed Annuity with Indexing Options

[FIA, Fixed Indexed Annuity

& EIA, Equity Indexed Annuities]

• Lump-sum or periodic contributions
• Invested in mostly high quality A-AAA bonds
• Annual interest crediting risk. Insurance company **guarantees principal
• Higher rate potential based on index performance (such as S&P 500, Dow Jones, NASDAQ, etc.)
• Moderate growth
• 4% to 8% interest crediting potential varies with index performance
• 3- to 14-year term normal
• Sophisticated, greater potential
• Guaranteed retirement income options
• Annual fees, minimal to none

Fixed Indexed Annuity Summary

All fixed index annuities are tax-deferred with no income tax requirement until withdrawal. This is a definite advantage over many investments like CDs, mutual fund^{^}s, stocks and bonds when considering a long term retirement investment. A long term fixed index annuity acquisition may consistently outperform CDs, bonds and treasuries. Reinvesting money that would otherwise be paid out in tax over an extended period of years is always an advantage. In addition, fixed index annuities have several benefits that can be important for retirement planning.

Question: In 2008, which insurance institution had the largest volume of new fixed index annuity business?

Answer: Aviva, a 300-year-old global AM Best A-rated carrier. They actually did so much new business that in 2009 they had to turn away hundreds, possibly thousands of new prospective clients as investors sought safety from the financial crisis at hand!