Indexed Annuity Returns For 2016

If you are shopping for (or own) a fixed index annuity, you likely have your eyes on a few different indices. Fortunately, 2016 was a good year  for most markets and many annuity accounts showed positive returns. Posted below, we have summed up the returns of the major indexes (like the Dow, S&P 500, NASDAQ, etc.) as well as some of the more popular indexing options available.

It’s important to note that the numbers below may not reflect your overall returns. Caps, spreads, participation rates, bonuses and other metrics could increase or decrease your overall performance. And it’s unlikely that your annuity anniversary date is January 1 or each year. Many annuities start at different times throughout the year depending on when they were funded.

When reviewing the numbers above, most people might gravitate toward the indexes that performed the best in 2016 – like the Russell 2000 and S&P 500. Those figures only tell half of the story, however. What’s most important is how your annuity actually tracks the chosen index.

For instance, a monthly sum and point to point crediting method will show different returns when applied to the same index over the same period of time. Furthermore, caps, spreads, participation rates and multipliers will also affect your overall returns.

For example, if your index annuity only offered a 4% cap on a one year S&P point to point with annual reset, then that’s the maximum return you would receive. Whereas a similar annuity with a 7% cap would have gained 3% more interest. Using a $100,000 investment, that difference in cap would equate to $3,000! It’s very important to shop for the best caps when researching index annuities.

At our annuity brokerage, we receive several inquiries about bonus annuities.  They’re very popular and for good reason. It’s nice when you deposit $100K in an account and receive a 10% upfront premium bonus increasing your principal by $10,000 at onset.

Nothing in life is free, however. Whenever you see an annuity account with a large upfront bonus, know that the growth metrics (caps, spreads, etc.) will usually be greatly reduced. This simply means you will have less potential for interest gains going forward. That’s the trade-off; it’s pay me now or pay me later.

If you want a large bonus, be prepared for smaller interest gains when the market goes up when  compared to a similar annuity with no bonus. That’s not to say the bonus account will necessarily be worth less over time, it really depends on the economic cycle you’re in, but it will affect your returns going forward.

When shopping for the best fixed index annuity, it’s important to consider all of your options. The chart above just lists a few of the prominent indices available. There are many, many others to choose from, including: inversion strategies, gold & precious metals, European indexes, emerging markets as well as several proprietary options.

One size does not fit all. You’ll want to consider the term of the account, crediting strategies, bonus availability and all other metrics like caps, spreads participation rates, etc. It’s also important to see that double digit growth is possible with these policies in good market years.

We work with our clients to find the indexed annuities that best fit their needs, goals and timeline. Contact us today to learn more about our offerings.