When an annuity’s capital appreciation potential is tied to the performance of an index, it is referred to as a fixed indexed annuity (FIA). Fixed indexed annuities are also commonly referred to as equity index annuities (EIA) or simply indexed annuities (IA). Generally, the annuity’s losses are limited while a portion of its gains are tied to the individual equity index’s returns. Some common indexes include the S&P, DIJA and the NASDAQ. With a fixed indexed annuity: 1) the money can go in as a single premium payment or a series of payments; 2) the money is invested at a variable rate although there is a guaranteed minimum rate of return that provides a floor, and; 3) payments begin at a future date and are at a fixed rate that is based on market performance and is supported by the guaranteed minimum rate.
Mark J. Warshawsky is Director of Retirement Research at Towers Watson.
Dr. Warshawsky served as assistant secretary for economic policy at the U.S. Treasury Department from 2004-2006 and he has held senior level economic research positions at the Federal Reserve Board, the Internal Revenue Service and...
The tough thing about classifying annuities is that the three common features described in the previous chapter can be mixed and matched to create a bewildering array of options.
