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You may be wondering…
What is a fixed index annuity?
• An insurance product
• Offers protection against losses from market volatility
• Accumulates interest on tax-deferred basis in one of two ways
‒ Fixed rate – specific, consistent percent of interest credited each period
‒ Index-based – interest crediting tied, in part, to the performance of one
or more market indices (e.g., S&P 500®)
Taxable distributions (and certain deemed distributions) are subject to ordinary income taxes, and if made prior to 59½, may also be subject to
a 10% federal income tax penalty. Early surrender charges and market value adjustments may also apply.
Indices are typically unmanaged and not available for direct investment.
“Standard & Poor’s®”, “S&P®”, “Standard & Poor’s 500™” and “S&P 500®” are trademarks of Standard & Poor’s Financial Services LLC and have
been licensed for use by Forethought Life Insurance Company. Fixed index annuities are not endorsed, sold or promoted by Standard & Poor’s
and Standard & Poor’s does not make any representation regarding the advisability of purchasing a fixed index annuity contract.
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You may be wondering…
What kind of client typically purchases a fixed index annuity?
• Always discuss retirement planning with your financial advisor
• FIAs are not for everyone
• Generally, FIAs are typically for people who are:
‒ Unwilling to risk market losses
‒ Interested in a product with more growth potential than traditional
deposit products
‒ Uncomfortable with stock market volatility
Traditional deposit products may be FDIC insured. FIAs are not FDIC insured and are based on the claims-paying ability of the issuing company.
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You may be wondering…
Are FIAs substitutes for equity investing?
Simply Speaking…
• No, FIAs are not replacements for equity investing
• Equity investments are invested in the stock market; FIAs are not
• They may be considered a more conservative alternative to equities
• FIAs use interest crediting methods that can be tied to an equity index to
provide greater crediting potential
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You may be wondering…
Do FIAs only work in certain market conditions?
Simply Speaking…
•
No, in fact they are well-suited to fluctuating market conditions because:
‒ They link interest crediting potential to market upswings
‒ They provide protection against losses when the market is down
•
The following chart compares a hypothetical FIA product with annual crediting periods against the S&P
500® returns adjusted for inflation
Index past performance is not indicative of future results. The hypothetical performance of the fixed index annuity, as illustrated, assumes a $1,000 initial investment, a cap of 5%
(using an annual Point-to-Point with cap crediting method) in years of positive index return and assumes no withdrawals or surrender charges during period shown. This
hypothetical example is for illustrative purposes only and not intended to show the performance of any specific product.
“Standard & Poor’s®”, “S&P®”, “Standard & Poor’s 500™” and “S&P 500®”are trademarks of Standard & Poor’s Financial Services LLC (“Standard & Poor’s”) and have been
licensed for use by Forethought Life Insurance Company. Fixed index annuities are not endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s does not make
any representation regarding the advisability of purchasing a fixed index annuity contract.
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You may be wondering…
How does money grow in an FIA?
Simply Speaking…
• FIAs accrue interest through one or
more crediting methods
• There are several methods, usually
with a crediting period of one year
• Popular methods include:
– Annual Point-to-Point with Cap
– Monthly Point-to-Point with Cap
– Fixed Rate
Annual Point-to-Point with Cap
Monthly Point-to-Point with Cap
Fixed Rate
The insurance company that issues the FIA may change the fixed crediting rate or indexlinked caps from period to period.
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You may be wondering…
Do FIAs have limited upside potential?
Simply Speaking…
• FIAs may have caps on the upside as a trade off for downside protection
• Caps vary by the interest crediting strategy you choose
• It is possible to see significant upside depending on:
– Index performance
– Chosen interest crediting method
Source: Wharton Financial Institutions Center Personal Finance-“Real World Index Annuity Returns”, 12/27/2010
The data above is derived from 19 FIA carriers and their associated products, comprising 172 contracts and 12 different credit rate structures. All results are based on copies of actual customer
statements received with personal information blacked out, for each of the preceding five-year periods, requested on an annual basis since 2002. The return data reflect contract periods closest to
30 September with the exception of the 1997-2002 period that uses a 2 January date. Therefore, not all returns key from the same date within the time periods cited and results reflect only one day
out of each year within the time period. The returns reflect the results of products with term-end point, high water mark, and annual reset designs with and without crediting rate caps, and with
and without averaging. The returns do reflect any fees charged and surrender charges. Annuitization was not required to receive these returns. All returns shown above are annualized rates of
return and are not meant to be a proxy for index mutual fund returns.
Past performance is no guarantee of future results and the chart is not intended to represent the performance of any specific FIA product.
FIAs are designed for long-term retirement purposes with guarantees backed by the claims-paying ability of the issuing company.
Indices are unmanaged and unavailable for direct investment.
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You may be wondering…
Do FIAs require me to lock up my money
for a long time?
Simply Speaking…
•
•
FIAs are meant for long-term savings purposes
There is a charge for early withdrawals, but with some flexibility:
– You can typically withdraw up to 10% of your money per year without a withdrawal
charge (after the first contract year)
– Many FIAs provide full access to your money, free-of-charge if the contract owner:
•
•
Becomes terminally ill
Requires nursing home care
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Any withdrawals may be subject to ordinary income tax and, if taken prior to age 59½, are subject to a 10% federal income tax penalty.
1Some products refer
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to this as a surrender charge
You may be wondering…
Why is tax deferral a benefit if I have to pay taxes on the
interest I earn when I withdraw the money anyway?
Simply Speaking…
•
Federal income taxes are a certainty, but the timing of when you pay them may offer a financial
advantage
•
Purchasing an FIA allows you to postpone paying taxes on interest
•
Interest compounds over time
•
When you withdraw money from your account in retirement, you may be in a lower tax bracket, which
means you will pay less in taxes
The chart compares $100,000 in a tax-deferred product vs. a taxable product.
1. Both receive an interest credit of 5% annually for 30 years.
2. One is taxed annually at an assumed federal income tax rate of 28%.
3. The other receives its interest credit on a tax-deferred basis.
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You may be wondering…
Do FIAs require you to take income payouts?
Simply Speaking…
• No
• You have the opportunity to use your FIA to generate predictable income
payments, but you don’t have to
• Your options include:
– Withdrawal of the contract value
– Keep your money where it is, using the same crediting method or choosing a
new one
– Annuitize and receive predictable income
– Activate a guaranteed lifetime payment benefit
Guarantees are based on the claims-paying ability of the issuing insurance company and assume compliance with all benefit rules.
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Other questions to consider
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When do I plan to retire?
When will I need income to supplement my retirement?
What options do I have to protect my assets from market volatility?
What role could an FIA play in my overall retirement income planning?
Do I need income throughout my lifetime only, or my spouse’s as well?
Why did my financial professional choose this particular FIA product for
me?
How often can I change the interest crediting methods on my contract?
Can I use more than one method at a time?
What factors should I consider in determining the surrender charge
schedule that will work best for me?
Disclosures
Guarantees are based on claims-paying ability of the issuing company and subject to compliance with benefit rules.
Fixed index annuities are issued by Forethought Life Insurance Company.
A fixed index annuity is intended for retirement or other long-term needs. It is intended for a person who has sufficient cash or other liquid assets for
living expenses and other unexpected emergencies, such as medical expenses. A fixed index annuity is not a registered security or stock market
investment and does not directly participate in any stock or equity investments or index.
Taxable distributions (including certain deemed distributions) are subject to ordinary income taxes, and if made prior to age 59½ , may also be subject to a
10% federal income tax penalty. Payments from IRAs are taxable in accordance with the normal rules surrounding taxation of payments from an IRA. Early
surrender charges may also apply. Withdrawals may reduce any optional guaranteed amounts in an amount more than the actual withdrawal.
This information is written in connection with the promotion or marketing of the matter(s) addressed in this material. The information cannot be used or
relied upon for the purpose of avoiding IRS penalties. These materials are not intended to provide tax, accounting or legal advice. As with all matters of a
tax or legal nature, you should consult a tax or legal counsel for advice.
Products and features are subject to state availability and variations.
Forethought is Forethought Life Insurance Company and affiliates, subsidiaries of Global Atlantic Financial Group Limited.
“Standard & Poor’s®,” “S&P®,” “S&P 500®,” “Standard & Poor’s 500,” and “500” are trademarks of The McGraw Hill Companies, Inc. and have been
licensed for use by Forethought Life Insurance Company. Forethought Life’s fixed index annuities are not sponsored, endorsed, sold or promoted by
Standard & Poor’s and Standard & Poor’s makes no representation regarding the advisability of purchasing the product. Past performance of the S&P
500® is no guarantee of future results. Any examples utilizing the S&P 500® Index are for illustrative purposes only. The S&P 500® Index is a price index
and does not reflect dividends paid by the stocks underlying the index.
Indices are not available for direct investment.
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