Why Fixed Indexed Annuities Still Stand Out in a Low-Interest Rate Environment
If you’ve been following financial news, you’ve likely heard about the Federal Reserve adjusting interest rates. But what does that mean for your financial future—especially if you’re nearing retirement or already retired?
When rates fall, borrowing becomes cheaper, which can help stimulate the economy. Unfortunately for savers, it often means lower yields on bank CDs, bonds, and money market accounts—making it harder to find dependable returns.
So, where can you turn for growth and income when rates go down? One option worth considering is a Fixed Indexed Annuity (FIA).
Understanding Fixed Indexed Annuities
FIAs are insurance products that combine principal protection, growth potential, and income guarantees.* They’re designed to help you grow your retirement savings without exposing them to market losses. Even in a low-rate environment, FIAs offer compelling benefits:
- Principal protection: Your original premium is shielded from market downturns.
- Growth potential: Interest is credited based on the performance of a market index, offering more upside than traditional fixed annuities.
- Tax-deferred growth: You don’t pay taxes on your earnings until you withdraw them.
- Customizable features: You can often tailor your FIA with options like a lifetime income rider, which guarantees a steady paycheck for life, even if your annuity runs out of money. The lifetime income rider is available on many products for an additional charge.
How FIAs Compare to Other Conservative Options
Feature | FIA | Bank CD | Bonds |
|---|---|---|---|
| Principal protection |  | | |
| Market-linked growth | | | |
| Tax-deferred growth | | | |
| Lifetime income rider option | | ||
| Backed by | Issuing company and State Guaranty Association | Federal Deposit Insurance Corporation (FDIC) | Issuing company/entity only |
Although many key features are captured here, there are other factors to consider.
A Real-Life Example: Linda’s Retirement Strategy
Consider Linda, age 62, who wanted to protect her money while still earning a reasonable return as she approached retirement.
Two years ago, she placed $150,000 into a 10-year FIA and purchased an optional lifetime income rider. At the time, bank CDs paid around 3% annually. Linda’s FIA, linked to a well-known index, offered a cap rate of 10%, which was guaranteed for the entire surrender charge period. That FIA also had a guaranteed minimum interest rate of 1%.
At the end of the first year, the index reached its cap, and Linda earned 10% interest—far above what more conservative vehicles may have provided. Plus, her principal remained protected, and she locked in that gain permanently. Now, even if interest rates fall, Linda’s FIA provides a guaranteed monthly income that supplements her Social Security and helps her enjoy greater financial peace of mind.
Why FIAs Can Shine When Rates Drop
Even if cap and participation rates decline slightly, FIAs may deliver better returns than most low-yield options, money market accounts, or traditional fixed annuities. Here’s why:
Income That Isn’t Tied To Interest Rates
Unlike bonds or CDs, FIA income isn’t dictated by short-term rate movements. Insurance companies pool longevity risk—so you continue receiving income even if your account runs out.Better Value Compared To Other Conservative Choices
Other income options may charge higher fees or pay even less in a low-rate environment. FIAs can offer more value for your money.
Reduced Interest Rate Risk
Unlike bonds, FIAs don’t lose principal when interest rates rise, making them a more stable long-term option.The Bottom Line
No one can predict where interest rates will go next—but you can choose a strategy built to perform through rate changes. FIAs offer a balance of protection, growth potential, and reliable income that may help you move toward retirement with confidence.
Talk with your financial professional today
Learn how a Fixed Indexed Annuity might help protect and grow your retirement funds—no matter what happens with interest rates.
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* Guarantees rely on the financial strength and claims-paying ability of the issuing insurer.
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