How Do You Set Up a Fixed Index Annuity? (And What Do You Get Back?)

Understanding More About Fixed Index Annuities with Income Riders

We’ve told you previously about the one key reason why people decide not to purchase a fixed index annuity with an income rider as part of their overall retirement income plan. It’s not because of surrender charges, fees, or lower returns. It’s because the benefits of a fixed index annuity with an income rider simply sound too good to be true. Of course, they’re NOT, and you can read more about that here if you need a refresher.

So, let’s assume you’re ready to move forward with your fixed index annuity with an income rider – where do you start and how, exactly, does it work? We’re here to walk you through it.

Your Quick Reminder: What is a Fixed Index Annuity with an Income Rider?

What really is a fixed index annuity with an income rider? An extremely summarized version of a definition for a fixed index annuity with an income rider could be: a contract with an insurance company that can be funded with cash (after-tax money) or IRA money, and guarantees your principal against all stock market losses regardless of severity, protects all previous and current gains against all future stock market losses, may provide guarantees on your income for as long as you live even past age 100, provides you an opportunity for a portion of index gains, provides income tax-deferred growth of all earnings, is subject to surrender charges limiting your total liquidity, limits your overall returns providing lower returns than the stock market, taxes gains as ordinary income, and carries an annual fee (in most cases) to guarantee your income for life.


SEE ALSO: Annuities 101


How to Get Started

You give a fixed index annuity company a lump sum of money by writing them a check or by transferring your account. In turn, the annuity company gives you an annuity contract which is a legally binding, written contract enforceable in a court of law.

Every single thing the insurance company promises and guarantees you are in writing in your specific annuity contract including your principal being protected against all stock market losses, your income is guaranteed for as long as you live, and all remaining assets passing on to your beneficiaries, how you access your money, the fees you pay, and how you earn interest in your account.

It’s a shame that some advisors and news sources are uneducated about fixed index annuities with income riders, but are willing to “act and talk like an expert” by making negative comments about fixed index annuities without knowing enough to fully understand them. Many times, the negative comments center around how difficult fixed index annuities with income riders are to understand, or how they are so vague. There is nothing vague about a legally binding, written contract enforceable in a court of law that states everything in writing about where you have just placed your money.

  • Your mutual fund doesn’t give you a legally binding, written contract enforceable in a court of law.
  • Your portfolio manager doesn’t give you a legally binding, written contract enforceable in a court of law.
  • Your advisor doesn’t give you a legally binding, written contract enforceable in a court of law.
  • Your brokerage account doesn’t give you a legally binding, written contract enforceable in a court of law.
  • But the insurance company providing your fixed index annuity with an income rider does. They give you a legally binding, written contract enforceable in a court of law.

Let’s talk more about that contract now.

The Specifics of Your Legally Binding, Written Contract

Think how you’d feel if you had these 14 things in a written contract given to you by the insurance company:

  1. Guarantees principal against all stock market losses
  2. Guarantees all gains against future losses
  3. Income Rider guarantees an income for life
  4. States if there are any bonuses and defines restrictions
  5. Shows how you can earn interest – a portion of gains
  6. Provides index options available to you
  7. Details how and when you can access your funds
  8. States when you can access guaranteed lifetime income
  9. Shows how guaranteed lifetime income is calculated
  10. States penalty-free withdrawal amounts and access time
  11. Clearly defines surrender charges and time period
  12. Fees are stated and guaranteed
  13. Shows the fixed guaranteed interest rate option
  14. States your beneficiaries and percentages

This probably sounds pretty good, right? How would you like to get all the promises made to you about your money in a legally binding, written contract? How would you like if all the promises made to you can be enforced in a court of law?


SEE ALSO: Why Should Retirees Avoid Volatility?


If the stock market crashes, you will not lose any money in a fixed index annuity with an income rider due to stock market losses. If the index your contract is linked to goes up, you have the opportunity to earn a portion of the gain. Once you earn a gain, the gain and original principal are both protected against future stock market Losses. You can’t take all your money out without penalty for a stated time period in your contract, but you can typically start taking out 10% of your account every year starting immediately after the first year, without any penalties.

You can potentially set up a guaranteed lifetime income to start as quickly as 30 days from when you fund your annuity contract. How would you like to deposit your funds today and know within 30 days you would start receiving monthly income that is guaranteed to be paid to you for as long as you live? Even if the stock market crashes the day after you start your contract, your account will not suffer any stock market losses and your income is guaranteed for as long as you live.

Fixed indexed annuity contracts with income riders will typically either give you the option to defer your income and receive a higher amount of income for every year you defer, or to take income immediately and have the opportunity to receive potential income increases in the future based on how your fixed index annuity performs each year.

Want a Partner in this Process? We Can Help!

If you think this kind of annuity might be a smart move for you, reach out to schedule a conversation with us. With Peak Financial Freedom Group as your partner, we can start working toward your financial freedom today.

Want more information on annuities? Check out our book, Momma’s Secret Recipe for Retirement Success.

Peak Financial Freedom Group
2520 Douglas Boulevard, Suite 110
Roseville, CA 95661

DISCLOSURE:

All of the information presented here is provided and intended to be used for general educational and informational purposes only and is not intended as a solicitation for you to buy or sell any financial product. None of the information presented is intended to give you specific tax, investment, real estate, legal, estate, or financial advice but rather to serve as an educational platform to deliver information. The ideas, thoughts, and strategies presented here are those of the Management Team and provide an insight to our views on Peak Financial Freedom Group, LLC. Every detail in this website is subject to change without notice. Seminar, radio shows, TV productions, book releases, magazine and book promotions are sponsored, promoted and paid for by Peak Financial Freedom Group, LLC.


2nd Opinion Package available to Qualified Retirees and Soon-To-Be-Retirees may include free consultations, a free retirement income plan, risk analysis, and fee analysis. In addition, a comprehensive written retirement income plan may be provided to those who complete the entire process. Qualified Retirees and Soon-To-Be Retirees must have a minimum of $1,000,000 of investible assets such as IRA’s, 401K’s from past employers, stocks, bonds, mutual funds, bank accounts, money markets, CD’s, etc., but DOES NOT include real estate, businesses, limited partnerships, 401K/retirement plans that can’t be moved to another plan, and other illiquid type assets.


All investments involve risk, can involve the loss of principal, and unless otherwise stated, are not guaranteed. Past performance is no indication of future performance and such information cannot be relied upon regarding future potential gains. Nothing is directly or indirectly guaranteed by this information. The planning and ideas presented herein are not suitable for all individuals or situations. Hypothetical examples are used to explain concepts and are not indicative of potential results you could receive; past performance is not a guarantee of future results; and results are not indicative of any particular investment or income tax situation; your results will be different and could be lower or higher. Consult your financial professional before making any investment decision. Insurance product features and benefits, such as guaranteed lifetime income riders, are subject to contract terms, limitations, fees, and the claims paying ability of the insurance company issuing the contract. The sale or liquidation of any stock, bond, IRA, certificate of deposit, mutual fund, annuity, or other asset to fund the purchase of any other asset including an annuity may have tax consequences, early withdrawal penalties, or other costs and penalties as a result of the sale or liquidation. Different assets can be complex and carry fees, costs, and surrender charges. If you place assets under management with Fiduciary Solutions
LLC, we are paid an advisory fee from Fiduciary Solutions LLC and if you purchase an annuity through us, we are paid commissions from an insurance company.


2019(1), 2020(2), 2021(3), and 2022(4) Five Star Professional Wealth Manager Award - Dan Ahmad and Jim Files have been nominated for and have won the 2019, 2020, 2021, and 2022 Five Star Wealth Manager Awards. Wealth managers do not pay a fee to be considered or placed on the final list of Five Star Wealth Managers. Once awarded, wealth managers may purchase additional profile ad space or promotional products. Award does not evaluate the quality of services provided to clients. The Five Star award is not indicative of the wealth manager’s future performance. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or this publication. Working with a Five Star Wealth Manager or any wealth manager is no guarantee as to future investment success, nor is there any guarantee that the selected wealth managers will be awarded this accomplishment by Five Star Professional in the future. Award winners represent an exclusive group of wealth managers who have demonstrated excellence in their field by satisfying 10 objective selection criteria. For additional information on the Five Star award, including a complete list of the 10 objective selection criteria and their research/selection methodology, go to https://fivestarprofessional.com.


Investment advisory services are offered through Fiduciary Solutions, LLC, a California Registered Investment Advisor. Insurance products and services are offered through PFFG Insurance Agency LLC, a licensed insurance agency (CA Insurance License #0N14013). Peak Financial Freedom Group LLC is a financial planning and umbrella marketing organization, which enables the provision of multiple financial services under one brand. Peak Financial Freedom Group LLC, PFFG Insurance Agency LLC, and Fiduciary Solutions LLC are affiliated entities with common ownership and control.


Jim Files is licensed as an investment adviser representative with Fiduciary Solutions LLC (CRD #1620449) and is a licensed insurance producer with PFFG Insurance Agency LLC (CA Insurance License #0F06511). Dan Ahmad is licensed as an investment adviser representative with Fiduciary Solutions LLC (CRD # 1491561) and is a licensed insurance producer with PFFG Insurance Agency LLC (CA Insurance License #0732913).

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