How Does All Of This Work? How Do You Set Up A Fixed Index Annuity, And What Do You Get Back?

Written on .

You give a fixed index annuity company a lump sum of money by writing them a check or by transferring your IRA/457/403(b)/SEP/retirement plan on an income tax-free basis. 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 is in writing in your annuity contract including your principal being protected against all stock market losses, your income being guaranteed for as long as you live, 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 completely 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 about them to be rightfully able to do so. 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.

Think how you’d feel if you had all 14 things listed in the previous diagram, in a written contract given to you by the insurance company? Probably pretty good. 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?

If the stock market crashes, you will not lose any money in a fixed index annuity with an income rider. 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 set up a guaranteed lifetime income to start as quickly as within 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.