Weekend Reading: With Interest Rates Near Their Peak, Fixed Index Annuities Are Worth a Closer Look
This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
Amidst today’s record-high interest rates, you have an opportunity to explore investments that might be better suited for this environment. While certificates of deposit (CDs) and fixed annuities are common suggestions, there's another option worth considering: A fixed index annuity.
READ THE ARTICLEWhat it is: A fixed index annuity offers the potential for higher interest rates compared to traditional bank products, while helping safeguard your savings from losses. It earns interest based on the performance of an index like the S&P 500, with rates influenced by interest rate changes.
How it works: If the market index you're tracking rises 10 percent yearly and your fixed index annuity has an 80 percent participation rate, you receive an 8 percent increase. Alternatively, if there's a cap in place, and the market soars by 30 percent, your annuity might be credited with less (i.e. 12 percent if the cap is 12 percent). These limits on upside potential are balanced by protection from downside risk, ensuring your money remains secure.
The cost of a fixed index annuity varies. Unlike variable annuities known for their fees, many fixed index annuities have zero fees, as insurers make money from the spread between what they pay you and what they earn. Additional features, like riders guaranteeing minimum withdrawals, may incur extra costs.
If you're looking to take some risk off the table, consider this high interest rate environment your chance to reap healthy returns with minimized market exposure.