Saturday, August 30, 2008

Indexed Annuities

An Indexed product is very similar to a variable product. The difference is that they can have a floor as well as a ceiling- at least the good ones do. A floor means that you will be guaranteed a minimum rate of return. Even if it is ZERO, that is good because it means if the market drops you never lose money. Your money is yours- KEEP IT SAFE.

The ceiling is the same but at the top end. If the market goes through the roof you will have an upper limit and never earn more than that limit. This may sound like a weakness, and it is if the floor is low AND the ceiling is low. Why would someone invest in a product that has a floor of 0 and a ceiling of 1?

Hopefully this point is sinking in. Okay so what is a good range? It will vary from year to year. What company has the best range? Ask your Utah Pension Rep. :)

Even if you can discover all the packages for all the companies they are going to confuse you a bit more. How? Participation Rates. This is how companies determine how closely your investment will mirror the index it is tied to. Does it go up point for point with the index (100% participation) or does the market have to go up 2 points for your product to go up 1 point (50% participation). Participation Rates vary from company to company... as do fees! So look out.

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