Andrew Corbman: Are Fixed Index Annuities for You? Part 1

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Andrew Corbman finds joy in helping clients maximize the benefits provided in fixed index annuities. Read the blog below to learn more about this complex financial product and to determine whether it’s right for you:

There is no shortage of financial products out there for you to choose from. From mutual funds and certificates of deposits, to stocks and bonds, these financial instruments are designed to grow your money depending on your goal. When it comes to retirement, fixed index annuities are often at the bottom of the totem pole, but that doesn’t mean they aren’t any good. In fact, Andrew Corbman shares that fixed index annuities are very good for specific types of people and circumstances.

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Fixed Index Annuities

First things first, what are fixed index annuities? In a nutshell, annuities are defined by Investopedia as a “contractual financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time.” What this means is if you want to buy a fixed index annuity, you will pay a lump sum up front and then receive guaranteed income later, upon the retirement age of 60 if you choose to. The latter point is important, according to Andrew Corbman, as there are benefits to be had if you put it off, but that will be discussed later in another blog.

In concept, annuities are easy to understand. Andrew Corbman shares that the complexity of fixed index annuities comes into play when you factor in how insurance companies arrive at their calculations for the payout. Insurance firms vary in their calculations, hence it’s recommended to seek the help of a financial adviser when shopping around for the best contract. With fixed index annuities, these annuities track common indices such as the S&P 500 Index. When the stock market is up, you can expect your dollars to grow but only up to a certain limit. This limit is what is known as the cap rate.

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Andrew Corbman gives the following example:

If the S&P 500 Index grew by 8% and your contract has a cap rate of 3%, your money will only grow by 3%; the insurance firm pockets the difference. You may be wondering why you’d be okay with a rate cap, but here is where the beauty lies in fixed index annuities – your principal is guaranteed to be protected and intact even when the S&P 500 Index goes down.

In the next part, Andrew Corbman will discuss which types of people will benefit best from fixed index annuities.