An Equity Index Annuity works under a similar concept as a S&P 500 Market Index CD, said Bill Lea, CLU, ChFC, an investment broker with Lincoln Financial Advisors of Jackson.
“It`s timely for what`s going on in the market,” Lea said. “With the uncertainty of the market, it`s a place where people can safely put their money. Instead of buying one stock or one mutual fund, which could go north or south, you spread your risk among a large group of companies,” Lea said.
Primarily a retirement vehicle, the Equity Index Annuity combines the best features of both fixed and variable annuities. Tied to an index, the EIA has the stocks comprising an index tucked inside a tax-deferred wrapper, with a guarantee of principal, a 3% minimum interest plus 85% of the upside in the S&P 500, Lea said.
Index annuities may be locked in for one to nine years into one of several other indices, also including the S&P 400, NASDAQ 100, Russell 4000 and a number of international indexes. About 95% of Lea`s clients take the S&P 500, nine-year lock-in. The early withdrawal penalty is like a typical annuity, with 7% the first year, declining annually to 0% the ninth year, Lea said.
“Nobody knows what this market is going to do,” Lea said. “The question is – how long can America keep having the longest bull market in history when the rest of the world is in turmoil? A lot of investors have made money in the last 10 years and they are looking for ways to protect gains. This is an excellent way to achieve that goal.”