If you want to participate in the gains of the stock market without losing any of your growth, Equity Indexed Annuities are a great option. 

Last month, I explored one type of fixed annuities, called MYGAs. Now I want to talk about the second type of fixed annuities that I recommend to investors who are in their 50s. 

Equity Indexed Annuities are a great way to invest your savings with less risk because you can never lose money based on market declines.

These 7- to 10-year investments are based on equity stock indices, such as the S&P 500, The Dow Jones, and the Nasdaq. When you purchase one, your investment is capped at a certain percentage — let’s say 10%. 

Imagine you invest $100,000 in an Equity Indexed Annuity capped at 10%. Let’s say the stock index gains 5% in the first year. With your 5% return, you’ll end up with $105,000. 

That 5% gain is locked in, no matter what happens in the years that follow. 

In year 2, the stock index grows 12%. Your investment would only grow by 10%, because of the cap, giving you a total of $115,500. 

Protection against losses

“So wait… Why would I want to limit my earning potential?” you might ask. Because with this kind of investment, all gains are locked in. You can never lose your previous earnings. 

Let’s say that in year 3, the market takes a dramatic drop and is down by 20%. Your $115,500 investment is still protected. You haven’t lost any of the gains from year 1 or year 2. 

The worst you can do in a given year is 0%. 

At the end of the annuity term, you can keep the annuity going, shop around for the highest paying Equity Indexed Annuity at that time, or use your funds without penalty. 

In 2020 when COVID hit, the Dow Jones dropped 37% of its value, and the S&P 500 wasn’t far behind at a 34% loss. To traditional investors — especially those solely relying on their investments to sustain their livelihood in retirement — such a crash was devastating. 

Imagine the relief those with Equity Indexed Annuities must have felt, knowing that their investments — and previous vested gains — were safe.

What’s the difference between a MYGA and an Equity Indexed Annuities?

Multi-year guaranteed annuities, or MYGAs, are designed to gain a set growth no matter how the market fairs. Your investment will grow at that rate every year for the term of the MYGA. 

Equity Indexed Annuities allow you to take advantage of market gains beyond that set rate. Based on historical returns of the S&P 500, Equity Indexed Annuities should perform better than a MYGA over the long term.

However, with Equity Indexed Annuities, you take a risk of a lower return. 

Who are Equity Indexed Annuities for?

I recommend Equity Indexed Annuities, usually in combination with a MYGA, to my clients who are 50 years old or older. These investments are good for those who are nearing or have reached retirement age. 

This is also an excellent option for anyone who wants to diversify their portfolio with a portion of the portfolio being in assets protected against market decline. 

Let’s take Suzanne as an example. Suzanne is 53 and has had comfortable success in her investments. She wants to continue to build, even as she nears retirement, but she’s a lot more cautious than she once was. 

Suzanne would be very happy with a solid 5.5% return. However, she’s willing to take a moderate risk of lesser gains for the potential of higher returns. She’s thrilled that there’s no chance to lose any gains she locks in year after year. 

If this sounds like you, give me a call. 

Now is the best time to take advantage of Equity Indexed Annuities. Because interest rates are so high, we are seeing exceptionally high caps on these annuities. 

But this will not last. I would predict that interest rates will fall within the next year. This will lower these generous annuity caps. 

Lock in yours today!