The

A BCs
of Protected
Retirement Income
A guide to understanding the
advantages and costs of FIAs
 The ABCs of
of Protected
Retirement
Income
A guide to understanding the
advantages and costs of FIAs

If you’ve started thinking about

creating income for retirement,
chances are you’ve heard about
annuities.

Annuities are used to create

income to help individuals
maintain their desired lifestyles
after their regular paychecks
cease. While there are several
types of annuities, all designed
to provide income in retirement,
fixed index annuities have a
higher potential for growth
without being directly exposed
to the stock market.

This guide is designed to help

you better understand fixed
index annuities so you can
determine whether they may
be a good fit for your overall
financial strategy.

2 The ABCs of Protected Retirement Income

 What is an annuity?

To understand fixed index annuities, it’s

important to first understand what exactly
an annuity is and the various types that are
available.

Broadly defined, an annuity is a contract

between you and an insurance company where
the purchaser pays a premium in exchange for
a variety of guaranteed payout options for a
set period of time or for the remainder of his
or her life. The two phases of annuities are
the accumulation phase, where the contract
value accumulates interest earnings, and the
distribution phase, where income is paid out
from the annuity.

Annuities are insurance contracts. They are

different from savings accounts, investments
and other types of insurance policies because
they are the only financial product that can
guarantee income as long as you live. The
guarantees of an annuity are backed by the
financial strength and claims-paying ability of
the issuing insurance company.

A guide to understanding the advantages and costs of FIAs 3

 What are the basics of FIAs?
Types of annuities
In an age when the responsibility for funding
There are two categories of retirement is shifting more to the individual
annuities: immediate and and further away from employer pensions and
deferred. With immediate government programs like Social Security, fixed
annuities, the insurance index annuities offer a solution for generating
company provides a series reliable retirement income. FIAs are attractive
of guaranteed payments to those preparing for retirement because of
that begin right away. With the principal protection they provide and the
deferred annuities, you make potential to earn higher interest than other
one or multiple payments financial vehicles. In other words, you can get
over a longer period of time, some of the benefits of the stock market without
allowing your premium to as much of the risk.
accumulate interest.

There are three types of How FIAs work

deferred annuities: fixed,
variable and fixed index. An FIA earns interest on your principal, up to
a certain amount, based on an external market
While traditional fixed index, such as the S&P 500. When you buy an
annuities provide a steady, FIA, you do not own any shares of stock or
guaranteed interest rate participate directly in the stock market. Rather,
for a specific number of you own an annuity contract.
years, variable annuities
can possibly provide higher FIAs credit interest to your annuity based on a
growth on your premium formula (determined by the insurance company
— at the cost of greater and outlined in your contract) that decides how
risk. Fixed index annuities additional interest from the index is calculated
(FIAs) combine some of the and credited to your contract value.
characteristics of both types.
While the core benefit of fixed annuities is
guaranteed interest credited to your principal

4 The ABCs of Protected Retirement Income

and the core benefit of variable annuities is indexing strategy would earn 4% interest.
the potential for higher growth, FIAs offer
protection of principal from market losses Notice that in the economic downturn in
and the potential to provide higher interest 2008, the S&P 500 dropped significantly,
earnings than traditional fixed annuities. from approximately $119,500 to $73,500,
while the FIA stayed flat. So while it didn’t
Using the S&P 500, the chart shown here gain any additional interest that year, it
illustrates a hypothetical scenario of how also didn’t lose any principal or previously
an investment of $100,000 would have gained interest due to market losses.
performed if invested in the stock market
versus through purchasing a fixed index If you’re looking to guarantee a portion
annuity. In this scenario, the FIA had a of your retirement income, an FIA may be
40% participation (par) rate, meaning that worth considering.
if the market performed at 10% growth,
the money the FIA owner allocated to that

FIA vs. Stock Market Performance

$400,000

$350,000

$300,000

$250,000

$200,000

$150,000 S&P 500

FIA with 40%
$100,000 Participation Rate
Fixed Rate (2%)
$50,000

$0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

This hypothetical example is for illustrative purposes only, should not be deemed a representation of past or future
results and is no guarantee of return or future performance. This example does not represent any specific product and/
or service. An FIA with 40% par rate and no cap is for illustrative purposes only. Please note, it is not possible to invest
directly into the S&P 500 Index; this measure is provided solely as a gauge of overall market performance.

A guide to understanding the advantages and costs of FIAs 5

 Don’t go it alone!

Trying to figure out the best ways to make your money last in retirement isn’t always as
straightforward as it sounds. It’s a good idea to speak with a financial professional who can
give you an objective viewpoint on whether an FIA could be a good fit for a portion of your
retirement assets within your overall financial strategy. The decision to purchase an FIA
ultimately depends on your unique financial situation, risk tolerance and financial goals.

We’re here to help! We can provide guidance

regarding your overall financial strategy
and the role FIAs may play.

A guide to understanding the advantages and costs of FIAs 7