How to Make the Most of a Maturing Equity Indexed Annuity

11 Nov

Did you invest in an equity indexed annuity  a few years back? If you bought it seven years ago, the maturity date may be approaching fast, and you might only have a small window of time to decide whether to renew the annuity or place your money elsewhere.

If you look at what has happened to annuity rates and the markets since you bought your equity indexed annuity, you may understand why the specifications for a new contract might differ. Interest rates are at a four-decade low, and the markets have swung wildly. Therefore, there’s a good chance that you will see lower market participation rates and lower maximums (caps) on amounts credited to your equity indexed annuity. In addition, you may have to make a longer-term commitment on your new contract.

The company might now have the ability to change participation and cap rates on the annual anniversary dates, whereas, your original contract may have kept the same numbers throughout the term. However, this could work in your favor. Because if the equity markets become less volatile, there’s the chance that index option premiums will decrease, thus allowing annuity companies to offer higher annual participation levels and caps.

Times have changed and many of our investments have as well, and a new equity indexed annuity might not be identical to the one you bought before. Nevertheless, it will still provide the same opportunity for tax-deferred growth and the other features that encouraged you to make your original purchase. 

Remember that you don’t need to stay with the same annuity company or the same type of annuity.  You can 1035 exchange your annuity with surrender charge at maturity for an equity indexed annuity with another company, a traditional fixed annuity or a variable annuity.

 Note: There may be risks with equity index annuities that include, but are not limited to, the fact that the return is calculated at the end of the vesting period; often, the investor cannot access cash prior to the end of the vesting period without restriction; if the index performs well, low interest rates are irrelevant; each annuity is subject to fees and charges; and withdrawals may be subject to surrender charges. These restrictions have an impact on performance and must be considered when deciding to purchase or exchange the annuity.

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