Fixed index annuity

I had a Variable Annuity with Vanguard that had these options. I'm not familiar with fixed ones.

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Run

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why run?

Will not consider Variable Annuity-was in one for short time years ago and got out just in time before i lost any.

this is a fixed index. It's being proposed to me because the agent wants to make money. I'm considering it because of the protection of principal in a qualified account. Will make up about 12-13% of my qualified funds. The rest of my assets are cash, real estate besides primary residence, and life insurance cash value, besides SS.

the one i'm considering is 7yr, free 10% annual withdrawal, decreasing withdrawal charge each year, 9% cap on 50% of the assets, the other 50% is at 0% due to a 2-yr point-to-point spread but has about 7% annualized return on the lowest 10-yr period over the last 22 yr.

66y/o. Do not plan to annuitize

My first gut reaction would be for you to use a broker/dealer who can set up a bond strategy.
You should be able to get those returns without the huge commission tying up your money for 7 years.
A good broker/dealer cuts out middleman fees. And can structure the plan to acquire near maturity bonds to reduce risks. Municipals can give tax benefits.

But.
If you are so diversified that you do not need the funds for 7 years (100% guaranteed) and for some reason you are avoiding market exposure for those 7 years (which is a mistake in my opinion, but that would be a different thread), the annuity may be a good fit.

For me personally, I'm in the market with a 7 year duration for all of my funds. Your age doesn't matter. The duration does. And 7 years out doesn't scare me. You can change the strategy 3 to 4 years in for a safer position and come out ahead of the annuity.

It sounds like you’re not interested in any downside market risk whatsoever, right?

In that case, a fixed index annuity can serve a purpose. I’d shop around and see what other options exist within the space though. Ideally you want a straight forward S&P 500 point to point cap option, preferably 1 year terms. These proprietary indexes that some firms offer can be a pain in the arse to track and/or actually make intelligent decisions around.

Brighthouse (formerly MetLife) offers an interesting option with their Shield Level annuities. For example, you can get a 6-yr S&P 500 linked option that has a 500% upside cap with 10% downside protection - if the market is up, you receive the gain up to 500%. If it’s down over the 6 years, Brighthouse will eat the first 10% of losses, and you’re on the hook for the rest. They offer other variations within the 6-yr surrender schedule, like a 1-yr option with 25% downside and 13.5% upside cap. I just pulled these off of their public website.

I don’t sell products, but I’m not too stubborn to admit they have a place for the right situation.

It sounds like you know the downside risk on the annuity..

Anything over 10% withdrawal comes with a severe punishment (that is your frontload cost). But if you avoid the charge for 7 years, the only downside is annuity management fees and withdrawal/access fees (which are high. You may want to get those in writing). But they aren't as punitive as the surrender charge.

For those that price shop fees, annuities are typically some of the worst with management.
So long as you know those going in and you need market aversion, I think you are fine with the annuity.

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Don't buy a buffered annuity. Get a traditional fixed index annuity with 100% downside protection if you get one at all.

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Why not?

A 25% downside buffer would have been broken only twice using calendar years since 1957 in the S&P 500. That trade off for 13.5% upside is well worth it, in my opinion (within the space of annuity products).

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Maybe we have different definitions of "whatsoever".

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, fair.

I was just throwing out a hybrid product that may give him another option.