The term “fixed indexed annuity” is widely used among insurance agents, financial advisors and retirees looking to maximize their retirement income. However, for many consumers, what exactly constitutes a fixed indexed annuity is not clear. What is a fixed indexed annuity? What are they used for? Who should buy an indexed annuity?

A fixed indexed annuity is a contract between you and an insurance company. In return for a premium deposit, an insurance company will set up a fixed indexed annuity account in your name. This indexed annuity will be tied to a particular stock index, such as the S&P 500. When the market rises, your indexed annuity rises. At the end of the indexed annuity time period, the annuity becomes liquid and the indexed annuity holder can do what he or she wishes with the funds. Fixed indexed annuity products are also commonly referred to as equity indexed annuities by insurance agents and marketers.

Fixed indexed annuities offer individuals a way to grow their money while shielding it from stock market downturns, by offering minimum interest rate guarantees (usually around 1-3%). There is typically a maximum interest rate, called a cap, so if the market performs above this your rate can only be the maximum allowed. Interest rates are calculated in a variety of different ways – so be sure that your agent explains how the indexed annuity rate is calculated before you buy.

Fixed indexed annuities are an entirely safe and stable way to grow a nest egg, because the principal you invest and any credited interest earnings are guaranteed. Funds for an indexed annuity can come from a variety of different places, such as a CD that is fully mature, a savings account, a liquid 401k/IRA account or even another annuity.

AnnuityForLife.com provides a one-stop shopping and comparison Web site for consumers interested in learning more about fixed indexed annuity options. To see a complete and expansive listing of available annuity products by category, visit www.annuityforlife.com or call 1-888-261-6237.