All the ups and downs in the stock market lately might make your head spin. We know what happened 8 years ago. But the market’s recovered nicely since then; in fact, the Dow’s over 18,000 for the first time ever. If you had any of your assets in the market, then if you’re like most Americans you probably lost a bundle. Have you participated in the upswing, or were you gun-shy? A lot of people took their money out of the market and are still on the sidelines.

But what if you could hedge your bet? By that I mean what if you could profit from the potential advances in the market without exposing your principal to the downside market risks? If you’re looking for a higher gain than you’ll get with say a CD or money market fund, but don’t want to risk your hard earned capital, you may want to consider an Equity Indexed Annuity (EIA).

EIAs are relatively new types of annuities. They offer all the safety and guarantees of a traditional fixed annuity, but they go a step further. The interest rate you earn in an EIA is linked to stock market performance, but the safety of your principal is assured. A decline or drop in the market will not reduce your policy value. The idea is to offer the gains in the market when it is performing well without subjecting your principal to market risk. There is a trade-off however. Although the EIA policyholder shares in market gains, he doesn’t actually realize 100% of the gain. So you’re trading a portion of your potential gain in order to eliminate 100% of your market risk.

Equity Indexed Annuities can offer all the features of traditional fixed annuities, including:

  • Guaranteed return of principal (less any applicable charges)
  • Safety and guarantees of principal and earnings
  • Death benefits free of probate
  • Tax deferral on accumulations
  • Lifetime retirement income options and death benefits
  • Long-term accumulation
  • Minimum guaranteed surrender values
  • Access to funds through free withdrawals
  • Surrender charges apply in most cases on early withdrawals.

The Equity Indexed Annuity is considered a fixed annuity because it offers guaranteed values regardless of how the stock market performs. An EIA may be suitable for those who can leave their funds in the policy for the long-term.

Some companies offer “senior friendly” EIA’s. These policies are designed for those that may need to access their funds for a decline in health or other situations that may require an unforeseen liquidation of the funds. Check with your annuity specialist for policies designed for older adults.
I love EIAs and believe every retiree should hold at least on in their portfolio.

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