How Fixed Indexed Annuities Work: A Visual Breakdown
Last week we discussed different types of annuities. I bet the winner is Fixed Indexed Annuity (FIA). It combines the safety of downside protection with growth linked to stock market indexes. When the stock market performs well, we receive a portion of the returns, and when the market underperforms, we avoid losses with a 0% floor. Some Fixed Indexed Annuities are geared towards accumulation and some for income generation during retirement. Annuities often have surrender periods ranging from 5 to 15 years. Today, I would like to take my own scenario and describe the options available to me.
Scenario : I am 45-year-old and want to invest $100k in a single premium fixed indexed deferred annuity. My idea is to first go for an accumulation type FIA for 10 years and grow my money. At the age 55, I want to roll it over to income FIA and start my private pension 10 years after that. That means at 65, I will have my own private pension.
Product : Athene Performance Elite 10 Annuity.
About Athene: Athene is a leading retirement services company founded in 2009, managing over $360 billion in assets as of December 31, 2024. It operates in the U.S., Bermuda, Canada, and Japan, and is a subsidiary of Apollo Global Management. Athene’s roots trace back to 1896 through its acquired companies, with some policies over 100 years old still in force. Its primary insurance subsidiaries hold strong ratings: A+ (AM Best, S&P, Fitch) and A1 (Moody’s).
Premium Bonus: Athene also gives one-time bonus on the single premium I will be paying. The bonus on this product is 13%. So, $13k gets added right away to my $100k when I invest in this product.
Illustration : Let's review the indexes I have chosen and what does that mean and then get to the illustration.
I have chosen 50% in BOFANFCC index and 50% in SPXFCDUE index. Look at the participation rate on the last column. In this product, the participation rate itself acts as a ceiling. So, if the BOFANFCC index gives 8% in a year, then 80% of it i.e., 6.4% will be credited into my account at the end of the year. If SPXFCDUE index gives 11% in a year, then 62% of it i.e., 6.82% will be credited into my account at the end of the year. If the market does bad and the indexes gives -10% loss, I get $0 credited to my account and I will not take any losses!!
Also remember that Athene is not investing my money in stock market. Stock market index performance is only used to decide how much money they need to credit into my account on my investment. How Athene safely grows my money is a topic for another short article.
Let's review the projections on this product.
This illustration assumes the index performance would repeat its past 10-year trend. You can see at the end of 10 years, my money will become almost 2.34 times i.e., $234,621. The years market does bad, you can see 0.00% credits. But I will not take any losses. Look at the "Annual Assumed Earnings Rate" column and see the ones I did underline in black.
This product also includes a death benefit. Unless the annuity has additional riders like long term care riders, annuities don't need any medical examination. Even people with health conditions can invest in this product and get the death benefit in addition to safely growing money.
That's a wrap this week. Happy Investing!
If you have any questions, feel free to ask them in the comments section of this article. I will answer every question asked.
