2/13/2023 0 Comments Index Annuity Crediting MethodsUnlike standard fixed annuities, which credit annuitants at a fixed rate linked to treasury securities issued by the government, indexed annuities credit annuitants on a monthly average of the price movement of a stock index. These annuities are designed to provide long-term needs for retirement income and offer a variety of guarantees including principal protection, credited interest and tax deferred accumulation potential. Index Crediting Methods North American fixed index annuities use several different index crediting methods and available indexes to determine the amount of interest that will be credited at the end of each index term (most commonly on an annual basis). Each of these crediting methods performs differently in various market scenarios, so it is important to understand which method works best for your annuity strategy. Read this helpful article to get more enlightened about index annuity. Annual Point-to-Point The most common type of crediting method on fixed index annuities, this approach measures the percentage change in the underlying index value between the beginning and ending dates of the contract year. The interest credited using this method may be lower than a multi-year point-to-point crediting method, but it can be a good option when the index is in a steady uptrend. Two-Year Point-to-Point The second most popular crediting method on fixed index annuities, the Two-Year Point-to-Point method uses a formula that may take a monthly average of a stock index's price movements to determine the percentage of change. This method is the most volatility sensitive and can be adversely affected by large monthly decreases in the market. Monthly Sum The third most common crediting method on fixed index annuities, monthly sum crediting is similar to the Annual Point-to-Point method in that it measures the percentage of change in the underlying index between the beginning and ending dates of the contract years. However, this method does not provide the same level of protection against market downturns as the Annual Point-to-Point method because it is based on monthly changes instead of point-to-point changes. Visit this homepage for further details about the RMD services. The monthly sum crediting method is most commonly used when the annuity owner has no other index account(s) that they would like to participate in, or when they are interested in receiving the highest possible credited interest during a market upturn. It can also be a good option when the annuity owner is concerned about having enough money to pay a withdrawal without suffering a loss of principal. The monthly sum crediting method also allows the annuity owner to choose a cap, participation rate or spread that will control how much interest is credited to the annuity at any given time. Participation rates, caps and spreads limit the upside potential of increases in the underlying index value and should be considered when selecting an indexed annuity. This link: https://en.wikipedia.org/wiki/Fixed_annuity sheds light into the topic—so check it out!
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