Equity Indexed Annuity
This discussion thread is being created for a question that was originally presented in the FAQ section.
The question is as follows: "What kind of return can I expect to get from an equity indexed annuity and how long do I have to commit my money?"
tom wrote on Sat, 09/12/2009 - 14:41:
It really depends on the annuity itself--there are no standardized features for fixed indexed annuities.
In other words, both parts of the question depend on the particular company and annuity you are considering.
Happy to try and help if you can provide more info.
Anonymous (not verified) wrote on Sat, 09/26/2009 - 04:20:
How about a index aunnuity through Aviva or American equity for 10 years, 10% bonus, 40% participation, 6.5% cap Is this a good thing?
tom wrote on Sat, 09/26/2009 - 11:35:
It is very difficult to provide a good answer without having some context about the potential annuity owner's situation.
For example, the following would need to be considered to even begin thinking about the relative merits of various annuities: 1) age - how long until retirement;2) single or married; 3) what other sources of guaranteed income (e.g. a defined benefit pension plan, social security, other annuity income, etc; 4) consideration of risk tolerance; 5)desired spending rate/level in retirement; 6) what other assets exist, etc.
The list is pretty involved and it bascially boils down to the fact that a very thorough financial planning exercise needs to take place BEFORE one can consider: a) whether an annuity makes sense; b) how much of one's assets to annuitize; c) when to annuitize, and; d) what type of annuity to potentially use.
The financial planning exercise is essential and needs to take place before any annuity purchase decision.
Comparison shopping (comparing rates, features, etc) for annuities is, in my opinion, not hugely meaningful. Needs assessment based on a good, comprehensive financial plan should drive the process--the annuity needs to sort of plug into that picture.
The above said, once the financial planning picture is complete it would make sense to "shop the market" and compare different companies on the basis of rates, features, insurer credit quality, etc.