Equity Annuities – Being able to retire comfortably is something most people only dream of. Unfortunately, many people end up having to work during their retirement years in order to continue receiving an income.
One of the major reasons for this is being financially unprepared for the future. That’s why it’s so important to start planning in advance because before you know it, the future will be here! One of the ways in which you can accumulate retirement savings is by investing in an annuity.
Annuities are basically long-term interest paying contracts which are typically offered by insurance companies or other financial institutions. Index annuities in particular have been gaining in popularity among the masses who are interested in having some type of savings plan for future use.
How Do Equity Indexed Annuities Work ?
Equity indexed annuities are usually linked to stocks or other types of equity indexes which earn interest. The specific amount you stand to gain depends entirely on how well those stocks do in the market.
Similar to other types of savings plans, equity indexed annuities have to remain untouched for a long period of time (usually 7-8 years), in order to receive the maximum benefits for your index annuity investment.
Some of the advantages that equity index annuities boast are another reason for their increasing popularity. For example, most insurance companies guarantee a minimum return on your principal investment amount over the life of the contract.
In most cases, this rate is guaranteed by the insurance company even if the index-linked rate is lower. While minimum return rates typically vary according to each company, they usually range between 1-3%. Additionally, some equity indexed annuities also offer investors a certain percentage in interest bonus during the first year.
With index annuities, the principal amount you contribute is also guaranteed to be protected by the insurance company. Some index annuity insurance companies also offer protection of your principal balance for each anniversary year of your initial investment.
This basically means that your investment amount has the possibility of increasing to higher balances each year, which means those new balances can also be protected.
Is There a Catch to Index Annuities ?
While equity indexed annuities do offer protection and several guarantees to investors, you have to be aware that they do so under certain conditions. For instance, you can stand to lose the money you invest in an equity indexed annuity if you cancel it prior to the term expiration date, as insurance companies typically enforce early withdrawal penalties.
Therefore, in order to retain the maximum benefits for your investment, it’s not a good idea for your equity index annuities to be withdrawn before the term is up.
The bottom line is that index annuities make sense for people who are interested in accumulating long-term savings for retirement purposes. Remember that you can’t access your investment amount and accrued interest on a regular basis.
That’s why equity indexed annuities are most appropriate for investors that are more concerned about the guarantees and protection offered rather than penalties for early withdrawal.
While index annuities may not be right for everyone and every situation, they can prove to be a reliable source for future financial planning needs. So if you’re someone who is looking for a long-term investment plan that has the potential to ensure your financial security upon retirement, equity indexed annuities may be the perfect solution for you!