An indexed annuity, also known as an equity-indexed annuity (EIA) or fixed-indexed annuity (FIA), is a type of annuity contract that provides returns linked to a stock market index, such as the S&P 500. It is a form of fixed annuity, meaning it guarantees a minimum interest rate but also allows for the potential to earn additional interest based on the performance of the chosen index.

Indexed annuities typically guarantee the return of the initial premium, protecting the principal from market downturns. This provides a level of safety for your investment. The interest credited to an indexed annuity is often tied to the performance of a specific stock market index. If the index performs well, the annuity holder may receive higher interest payments. However, if the index performs poorly, there is usually a minimum guaranteed interest rate to prevent losses.

Like other annuities, indexed annuities offer tax-deferred growth. This means that you won’t pay taxes on the interest earned until you withdraw the money, potentially allowing your investment to grow more quickly over time.

Importantly, annuities, including indexed annuities, can be structured to provide a stream of income for the annuitant’s lifetime. This provides a reliable source of income in retirement.

Indexed annuities allow you to benefit from stock market gains without exposing yourself to the full market risk. The downside protection provided by the minimum guaranteed interest rate can be attractive in volatile market conditions.