Index annuity update

Many investors have been increasing their allocations to index annuities as a way to reduce market risk while still maintaining reasonable growth expectations. As numerous insurance carriers have recently started offering “uncapped” index annuities, there are now several attractive alternatives to choose from.


Most uncapped index annuities will allow participation in a percentage of the gains of an index (without participation in the losses) and lock those gains in periodically. For instance, $100,000 allocated on Jan. 1, 2008 to a 55 percent participation rate of the S&P 500 and an annual lock-in would have grown to $186,773 by the end of 2017.*


Most contracts will lock in gains every one to three years. Mathematically, it’s always better to lock in more frequently. So why would anyone ever choose a two- or three-year lock-in? Typically, insurance companies can offer higher index participation when lock-ins occur less frequently. For example, there is a popular index annuity that offers both a one- and a two-year option. The one-year lock-in currently allows for 60 percent participation in the index appreciation, but the two-year lock-in offers 90 percent participation.


Since markets generally go up, the two-year lock-in with higher participation would have produced much higher returns over long periods of time than the one-year lock-in.


However, if there is a really bad year, the two-year lock-in may not start producing any gains until the two-year term is over and a new reset occurs, whereas the one-year reset would have the opportunity to make money after just one flat year. One strategy is to use an index annuity that offers both options. The investor can start with an annual reset and if there is ever a really bad year, there would be the opportunity at the anniversary to switch to the two-year reset and attempt to capture a higher percentage of a potential rebound.


*Safe Harbor Financial


Keith Singer

Keith Singer, a well-known financial advisor in Florida, is both a CERTIFIED FINANCIAL PLANNER™ (CFP®) practitioner and a licensed Florida attorney.

Ready to Take The Next Step?

For more information about any of the products and services listed here, schedule a meeting today or register to attend a seminar.

Or give us a call at 561.998.9985