Equity Indexed Annuities Explained
Near-retirees and seniors who have higher risk tolerance than the average older investor may want to have equity-indexed annuities explained by a qualified retirement investment advisor. This type of retirement annuity is similar in investor payment structure to fixed and variable annuities, although it is more like the variable annuity when it comes to how your investment in the product generates income.
What is an EIA?
The Equity-Indexed Annuity or EIA is a fairly unconventional type of annuity. In the period that the annuity accumulates gains after its investment of your lump-sum or series of annuity payments, your account is credited with returns that depend on how an equity index changes, although there are still minimum guaranteed returns. In general, higher stock value in the index gives the investor higher gains, but falling stock prices do not result in investment losses. The catch with an EIA is that the annuity issuer puts a cap on your earnings with maximum return limits, for which they provide protection against losses due to plummeting stock.
Investment Process
The maximum profit limit is based on the method of indexing the sub-investments. Participation rate is the most popular indexing method, where the insurance provider sets the rate of your participation at a certain percentage (usually anywhere from 50% to 90%), with the maximum possible gains being that set percentage of any growth the index experiences. For instance, a 20% index gain at 90% participation means your credited gain for the year will amount to 18%. In essence, the trade-off is 100% market risk so you can get some of the gains off the market.
Payout Structure
After the investment period, your insurer will give you regular payments as stated in the annuity agreement if you do not want to receive the entire account value in a single or lump-sum payment. EIAs are made up of various features of conventional insurance products like traditional annuities, including guaranteed minimum returns.
The various kinds of annuities can be practical investment tools for the senior or near-retiree, although it is best to do your homework by researching extensively and possibly enlisting the aid of industry professionals prior to choosing annuities for your retirement portfolio. This extra work is necessary because annuities are some of the most complicated investments, with different insurance companies using a variety of indexing methods. To know more about EIAs and other similar insurance products, talk to an investment advisor and ask to have annuities explained.
About the Author:
Katherine Smith is an author who specializes in financial topics concerning seniors. Puritan Financial Group provides information to retirees who need annuities explained, in addition to investment options that can help them build bigger and stronger nest eggs. For more info on how Puritan Financial Group can help you, please visit our website at http://www.puritanlife.com/.
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