Can You Explain What a Fixed Index Annuity is, Dave?

by | Jun 19, 2023 | Retirement Annuity | 46 comments

Can You Explain What a Fixed Index Annuity is, Dave?




Dave, Can You Clarify What A Fixed Index Annuity Is?
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Dave, Can You Clarify What A Fixed Index Annuity Is?

If you’re unfamiliar with the world of finance and investment, terms like fixed index annuity may seem confusing. However, understanding these financial products can be beneficial for your long-term financial planning. So, let’s break it down and shed some light on what a fixed index annuity is.

First, let’s start with the basics. An annuity is essentially a contract between an individual and an insurance company. It offers a way to save money for retirement by allowing you to contribute funds either in a lump sum or through a series of payments. In return, the insurance company guarantees to provide you with a regular stream of income during retirement.

Now, what sets a fixed index annuity apart from other types of annuities? Well, it combines features from both fixed and variable annuities. This means that while it offers more potential for growth than a fixed annuity, it also comes with some level of protection against market downturns.

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In a fixed index annuity, the interest rate you earn is typically linked to the performance of a specific stock market index, such as the S&P 500. The insurance company doesn’t directly invest your money in the market; instead, it tracks the index’s performance and credits you with a portion of its gains. If the market performs well, you can potentially earn higher returns compared to a fixed annuity. On the other hand, if the market performs poorly, your principal investment is generally protected, so you won’t lose money.

It’s important to note that fixed index annuities often come with a cap or participation rate, which limits the amount of return you can earn. This ensures a level of stability for the insurance company, as they bear the market risk for your investment.

Additionally, fixed index annuities usually come with a surrender period, which is a predetermined period during which you may face surrender charges or penalties if you withdraw your funds. This is an important consideration if you anticipate needing access to your money before the end of the surrender period.

Another attractive feature of fixed index annuities is the ability to receive income payments for life. This ensures that you won’t outlive your savings and provides long-term financial security during retirement.

In summary, a fixed index annuity is a financial product that allows individuals to save for retirement while providing the potential for growth linked to the performance of a specific stock market index. It offers some level of protection against market downturns, making it a popular choice for risk-averse investors. However, it’s essential to carefully consider the terms, surrender periods, and potential limitations associated with specific fixed index annuity contracts.

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So, whether you’re at the beginning of your retirement planning journey or exploring different investment options, understanding what a fixed index annuity is can help you make informed decisions about your financial future.

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46 Comments

  1. Steven

    No fees and the client does not pay commission. Ramsey is wrong…..again!

  2. L G

    There are Fixed Index Annuities that protect savers from the downside where the Insurance Company pays the sales commission to the Advisor and no additional fees.
    If You Lose 50% of Your Principal You Will Need A Gain of 100% To Get Back To Your Original Principal – Good Luck With That.
    These Fixed Index Annuities protect Savors from going backwards at time in there lives they don't have the time to catch up again. Buffett's #1 Rule of Investing is Principal Protection.

  3. L G

    You would get more views without all of the long drawn phone interview to explain what a Fixed Indexed Annuity is.

  4. Robin Gu

    Floor at 5% or 6%?

  5. Sean Rowe

    Question..let's say I have a fixed annuity for life by transamerica..is the Annuitor the owner of the policy? Or would transamerica corporation own the annuity..I assume annuit is same as owner.

  6. Dave Cummings

    Anyone who listens to Dave Ramsey is a fool. First off, to my knowledge, Dave Ramsey has never been licensed to give financial advice anywhere, ever! That's right; allegedly, he has not demonstrated to any legitimate regulatory authority that he has even the first clue about investments or finance through a standard exam, education, or personal experience. Why? Because reports say that Dave Ramsey filed for bankruptcy after being over-leveraged with debt while building a real estate portfolio, so he likely can't even qualify to be licensed or registered with FINRA or the SEC. So anyone who takes financial advice from a man with no license, education, or experience in finance, and who filed bankruptcy after failing in his own investments is a fool. I have a license, education, and extensive experience in banking, finance, and investments, and I am independently wealthy through my business pursuits. And I am telling you nearly everything Ramsey says is wrong. In this case, THERE IS SUCH A THING AS A FIXED INDEXED ANNUITY. It is an annuity with a fixed rate of return, and it is indexed to the S&P. So if the S&P exceeds that fixed rate, then the investor gets that amount OVER their fixed rate. In addition, it is the safest investment a person can make for lifetime income because it is not within the volatile banking industry or Wall Street. Lastly, the commissions agents get for selling an annuity are actually LESS than most brokers charge for mutal funds and stock investments. So that was ANOTHER lie. So, how does Dave get away with it? His stated title is a "TV personality." He doesn't claim to have any actual expertise, so he is just another random person giving his opinion, just like your uncle Joe who said keeping all of your money under the mattress was a good idea. Allegedly, Ramsey is ultimately bank rolled by certain hedge fund and mutual fund companies to promote the heck out of their products and push people away from products that compete with them (i.e. annuities) through
    Ramsey's SmartVestor Pro program. Some have even alleged the calls are fake and are designed to do just that. That is why there is almost no info given on the caller. A random government employee (not full name or stated government agency) and he has 1.8 million. I call B.S. The generic advice he gives about reducing debt and saving your money is just common sense. And even his books steal content from others, and he just renames them. Such as his "Debt snowball" technique, which pays off the lowest debt first and then applies the extra money each month to double up on the next debt, and so on, until it is gone. This concept was published years before Dave Ramsey by John F. Avancini in his book, "Rapid Debt Reduction Strategies." Anyway, if you want REAL financial advice, message me. If you want bad advice, listen to Dave Ramsey and other unlicensed people like him.

  7. Brock L

    Love seeing all the FIA shills rushing to protect their high commissions on their garbage product…LOL.

  8. Christian Villanueva

    Very interesting, I don't specifically like this clip because he doesn't give an exact solution. There was no intended goal in mind in the conversation, this is why I don't like Dave Ramsey. That's my opinion, you can disagree if you'd like.

  9. Sal Sax

    LIES!!!! This guy is saying anything!!

  10. Jim Kipp

    I don't know where Dave got his insurance license from, but he needs a refresher course on Fixed Indexed Annuities. There are no fees unless you purchase a rider for an additional benefit. Commissions are paid up front and do not come out of your investment; they come our of the insurance carrier's pocket. A mutual fund pays the broker commissions out of your investment. Also, a Fixed Indexed Annuity can pay you a guaranteed lifetime income. You can't get that with a group of mutual funds.

  11. kawi4ev

    Wow…. Dave seriously has gone downhill. Dude straight up giving bad information.

    There are plenty of structured index annuities with zero fees! Yes the adviser who sells them makes a commission but the commission does not come off of your principal. The company’s make money from a surrender charge if you were to cash it in within the first 6-7 years… obviously if you know you are going to need to money in a couple years, you would want to keep some money in more liquid assets like mutual funds, and stocks. Dave’s misinformation is just terrible. Do better Dave, you are not a financial advisor

  12. Ariah

    Are all annuities bad? I just entered my first tax course in college. Thanks

  13. William Rodriguez

    I'm surprised Dave Ramsey is keeping most of the comments up.. Maybe he will do research on Fix Index Annuities next time he talks about them.

  14. Naseri Financial Group

    By the way fixed index annuity has no fee , zero, Dave is evil

  15. Natabel

    You don't understand annuities. No cost, safety of principle and interest . Annuity is great investment tool together with security, MF and other. You need to do planning for Retirement. You sell MF.

  16. Joseph Sheridan

    Annuity and fees was so wrong… And then we recommend Mutal funds which is one of the most expensive financial products over time… Interesting

  17. Nick Favoroso

    This is actually insane that he can just say this. FIA’s have NO FEE’s! He has no clue what he’s taking about and he is just going to steer so many people away from what could be a good fit for them. FIA’s offer downside market protection with high upside market gains and they work for many people with old 401k’s or money that is not growing..This guys terrible

  18. El Tilin 1983

    Not all FIA have a fee. Do your research. You can also have the advisor disclose how they get paid. In the money game you need to be ok with others making some money as well. Much love god bless.

  19. Tom Latenite

    I cannot find this answer anywhere. Do insurance companies want you to annuitize your annuity as in start drawing money or do they rather you keep it in there

  20. KGM

    LOL @ all of the annuity shills flocking to the video's title.

  21. arosenberg1

    Dave hates whole life like his wife had a long secret affair with It smh

  22. Matthew Krause

    Cmon Dave yes FIA Annuities with higher participation rates have fee's but some options have virtually none if the participation rate is lower! Mutual Funds are .70-1.50% fee which is similar to high participation rate FIA annuities! Last time I checked mutual funds don't have a floor as you mentioned while FIA annuities do! How about you talk about the bonuses they provide consumers? Sorry but you have an agenda and you need to study up on FIA Annuities instead of telling people to run!

  23. Leah Garcia

    Dave, you are wrong and double wrong! The Fixed Index Annuity floor is not -5% or anything close to that. Fixed Index Annuities have a floor of zero, meaning your money never participates in the down market. Also many Fixed Index Annuities have very low and some even have no fees at all! Also the commission that is paid to the agent does not come out of your account, unlike your program where the fees paid to your advisor come directly from your own account. By the way your advisor gets paid irregardless if you make money or you lose money. This is the problem with taking advice from someone who is not properly licensed, trained and certified to sell Fixed Index Annuities. If you are stressed about losing money, reach out to a Licensed Insurance Professional to get the entire story.

  24. Edward Brown

    Who cares what commission the seller receives as long as YOU get what you what, especially if you want to protect your principle and obtain some growth and/or income?

  25. Barry Kelly

    Why does DR say fees and commissions are good (I assume with Smartvestor buddies but fees and commissions with fixed index annuities are evil?

  26. Smart Money Makes Money

    Oh my gosh. The misinformation Dave puts out there. He has no idea how FIA actually works and fees, commissions etc. ZERO. Why doesn’t he have open conversation with someone that actually handles these types of vehicles? Also… consumers. You have every right to ask the company or professional you work with exactly how much they will make and where that commission comes from.

  27. Set2Retire

    Protect the income you need to live on to live the lifestyle you are accustomed to. Freedom to give and freedom to live. Freedom from the fear of outliving your income, sequence of return risk and becoming a burden. Commissions vs Fees shouldn't be the focus. Right tool right job.

  28. Hong Hu

    Sorry Dave, your are so wrong. FIAs have no fee

  29. Bill Constain

    There are some indexed annuities that have ZERO fees. Dave please do your homework before you give your financial entertainment to people

  30. Mike DeVous

    What Dave doesn’t mention, which is the arguably the main component on a fixed indexed annuity is the guaranteed lifetime income. I haven’t found a mutual fund that will do that. Both good tools, different applications.

  31. Emmanuel Santiago

    Ramsey is wrong on this. An INDEX Annuity is a FIXED Annuity with a variable interest rate. The Princial is guaranteed and there are no fees unless the clients adds an additional rider. But the principal IS FIXED, like a regular fixed annuity. What insurance companies do with this type of annuity is that the money they would have paid on a fixed annuity, instead of paying it to the client, they buy derivatives on the index. So, if the index is up, the client makes money, but if the index is down, the client makes no money but always the principal is guaranteed by the insurance company. There are variable annuities that invest in index funds. That's NOT an index annuity. Ramsey is talking about a variable annuity that invest in an index fund, not an index annuity. I've been working with index annuities since 2006.

  32. Movez

    Horrible advice

  33. Anthony Owen

    So inaccurate. So many things to like about Dave Ramsey but the intentional ignorance of annuities and life insurance is unforgivable at this point. He has been around long enough to know better if he wanted to or wasn't so interested in making money by selling leads to advisors and brokers who make fees on your account value yearly, even when you are losing money. So sad that he can't be honest or learn the facts. I hope it is just ignorance but hard to believe it is at this point.

  34. Missouri

    Sorry Dave but I’m a longtime follower of yours and you are wrong on the fix index annuity
    Example you said that a fixing ex annuity has a floor of perhaps 5% no that’s not even close
    It makes it hard to trust you on other things when on something that is so definite like this you are so wrong on so I just wanted to point that out to your readers

  35. Trevor Maxwell

    Oh wow, sooo wrong! Dave really showed that he doesn’t know as much as he thinks he does.

  36. Mike Hoefer

    Seems like a lot of dough for a government employee.

  37. Prof Derek

    Last year, I made a property sale and had over $1 million in proceeds. I allocated $400k to index annuities and put the rest in the trending High Frequency Trading style. So far I've more than doubled the annuity premium from the stock market and sure enough will not need an annuity for the rest of my life. However I won't discredit annuities in any way, they buy you peace of mind but then a lot of people buy them out of fear of what's yet unknown even when it's not the best decision for them. If you need growth, try other stuffs. Annuities should be a backup plan, just like an insurance. Concepts like HFT/ algo trading and diversification of assets can be of great help for growth oriented individuals while still retaining control of your money.

  38. Marsh McClory

    This is why you don't get financial advice from Dave Ramsey. Fixed Indexed annuities have no fees unless you buy a rider that covers things like guaranteed lifetime income or chronic impairment benefits.

  39. Saeli Gutierrez

    Is fixed index annuities something while life agents sell as their “ investment product”?? Last time I checked you just need to be life licensed right to sell that.?? Or am i wrong?

  40. Annuity Association

    Dave, come on man….be better. This entire video is full of inaccurate statements. A Fixed Index Annuity is a zero-fee product. The only time there is a fee is if an income rider or performance enhancement rider is added. These optional riders provide contractual guarantees and the fee for the riders range between 1-1.5% on average. These fees are in line with the average 401(k) and/or mutual funds which provide zero guarantees of income or protection. A Fixed Index Annuity is a product that provides a contractual guaranty of principal protection. They are suitable for the moderately conservative investor who does not want to take risk in the market but is looking for higher return potential that traditional safe money instruments can't provide. It's as simple as that. I respect alot of your work, Dave. But this video is misleading to the people who could benefit from a Fixed Index Annuity when used appropriately in their retirement portfolio.

    – Jeremiah

  41. Jack Burrows

    Sorry Dave you're 100% wrong on the FIA! They are no fee's. He's confused. His talking points are about a variable annuity. It's a shame so many people follow his advice. Like someone said in the comments. Talk to someone who's a fiduciary or a independent insurance agent who specializes only in these insurance based products. There is a balance between safe money products and market based products- just need to determine what your purpose of the money is..

  42. Jerry Talley

    It’s sad that someone that has influence over millions gives incorrect advice. Get advice from a registered rep that can offer mutual funds, stocks, bonds, alternatives, annuities, fixed, indexed and variable. And most importantly, a series 65 or fee based license. This makes him a fiduciary. Sorry Dave, indexed annuity without riders have no fees, period/paragraph. Finally, only use GUARANTEES for the income that pays all necessary expenses, all other can be invested however you want

  43. Chris Gann

    Dave’s reps will make a killing on investors. Dave’s first sentence about indexed annuities was wrong. Dave is not accurate. Dave lies. The up front commission on an indexed annuity is 6%. If one of his reps keeps your money for 6 years, his fees pay him more than the indexed annuity commission. Dave makes money selling leads! He has no clue about annuities. You should take a risk test. Some of your money will probably go into an indexed annuity with guaranteed lifetime income and some money should be invested in the market. You should only work with a broker that can invest in both strategies.

  44. E B

    Sad

  45. Freddy Telleria

    Dave,
    Fixed, indexed and index linked annuities (structured annuities) have 0 fees. Variable annuities come with fees and are expensive. Please speak to one of your smartvestor pros and confirm these facts. FYI

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