Equity indexed annuities (EIAs) are a type of annuity that are linked to the performance of a stock market index, such as the S&P 500. Here are some reasons why people may choose to buy equity indexed annuities:
1. Potential for higher returns: Equity indexed annuities offer the potential for higher returns than traditional fixed annuities, as they are linked to the performance of a stock market index. This means that if the index performs well, the annuity's return may be higher than a fixed annuity.
2. Protection against market downturns: Unlike investing directly in the stock market, equity indexed annuities offer some protection against market downturns. Even if the stock market index performs poorly, the annuity holder may still receive a minimum guaranteed return.
3. Tax-deferred growth: Like other types of annuities, equity indexed annuities offer tax-deferred growth, meaning taxes are not due on the earnings until they are withdrawn. This can be advantageous for individuals who expect to be in a lower tax bracket during retirement.
4. Guaranteed income: Equity indexed annuities may offer a guaranteed income stream during retirement, similar to traditional fixed annuities. This can provide peace of mind for retirees who want a stable source of income throughout their retirement years.
5. Choice of payout options: Equity indexed annuities offer a variety of payout options, including lump sum payments, regular monthly payments, or a combination of both.
It's important to note that equity indexed annuities may not be suitable for everyone, and there are potential downsides to consider as well, such as high fees and complex contract terms. It's important to carefully review the terms and conditions of any annuity before making a purchase, and to consult with a financial advisor to determine if an annuity is a good fit for your overall retirement plan.