Fixed Index Annuities

Fixed Index Annuity (FIA): Secure Growth with Lifetime Income

What Is a Fixed Index Annuity?

A Fixed Index Annuity (FIA) is a retirement savings vehicle offered by insurance companies. It provides **principal protection** from market loss and allows your money to grow based on the performance of a stock market index (like the S&P 500), without being directly invested in the market.

Key Features

• Market-linked growth with a cap
• 0% floor – no market loss
• Tax-deferred accumulation
• Optional lifetime income
• Death benefit for heirs
• Long-term care riders (optional)

How It Works

• You fund the annuity with a lump sum (e.g., from a 401(k) rollover).
• Your account earns interest based on an index.
• You can choose to receive guaranteed income later in life.
• Your principal is protected — even during market downturns.

Example Scenario

Sarah, age 58, rolls over $250,000 from her 401(k) into a Fixed Index Annuity.

• Year 1: The S&P 500 grows 8%. Her annuity credits 6% due to a cap.
• Year 2: The S&P 500 drops -12%. Her account earns 0%, but suffers no loss.
• Year 10: She activates a lifetime income rider and receives $1,800/month for life—even if her account runs out.

Real-Life Example: O.J. Simpson

Despite owing millions after a civil lawsuit, O.J. Simpson's **annuity income was protected**. His retirement income, partially funded by annuities, could not be touched by creditors. This shows how annuities can offer **legal protection and stable retirement income**.

FIA vs. 401(k)

Comparison Table

Feature	401(k)	Fixed Index Annuity
Market Risk	Yes	No
Employer Match	Sometimes	No
Tax-Deferred Growth	Yes	Yes
Lifetime Income Option	No	Yes
Principal Protection	No	Yes
Lawsuit Protection	Limited	Strong (varies by state)
Probate Avoidance	No	Yes (with beneficiary)

Pros and Cons

Pros

• Guaranteed principal – no market loss
• Tax-deferred compound growth
• Optional lifetime income
• May include long-term care benefits
• Avoids probate with named beneficiaries
• Potential asset protection

Cons

• Caps limit market gains
• Surrender charges for early withdrawal
• Limited liquidity
• Complex for first-time buyers

Common Riders

• Lifetime Income Rider – guarantees income for life
• Death Benefit Rider – ensures heirs receive a payout
• Long-Term Care Rider – increases income if care is needed

Key Terms

Term	Description
Cap Rate	Maximum annual return credited (e.g., 6%)
Participation Rate	Percentage of index gain credited (e.g., 80%)
Floor	Minimum credited return (often 0%)
Surrender Period	Time during which early withdrawals incur penalties
Annuitization	Converting the annuity into periodic income

Frequently Asked Questions

Is my money locked up forever? No. Most contracts allow 10% annual penalty-free withdrawals after the first year.

Are annuities taxed? Yes. Withdrawals are taxed as ordinary income.

Can I lose money? No. Your worst-case return is 0% in a down market.

What happens to the money when I die? With a named beneficiary, the remaining value goes directly to them—bypassing probate.

Who Should Consider a Fixed Index Annuity?

• Pre-retirees and retirees (ages 50–75)
• Individuals rolling over a 401(k), IRA, or TSP
• Risk-averse investors
• Business owners or professionals seeking asset protection
• People without pensions who want guaranteed lifetime income

Final Thoughts

Fixed Index Annuities offer a safe and strategic option for retirement planning. They blend the **growth potential** of market indexes with the **security of insurance guarantees**—ideal for those who want income they can’t outlive, without worrying about market crashes.

Before purchasing an FIA, consult a licensed insurance professional to compare options and ensure it fits your financial goals.

Related Pages

• Annuities Explained
• 401(k) Rollover Strategies
• Lifetime Income Planning
• Long-Term Care Insurance