Annuity how do they work

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Earnings and Returns

Although your indexed annuity is invested in the stock market via an index fund, you enjoy only a percentage of the growth of that particular index. This is because most annuities don't have a 100 percent participation rate. For example, if the fund your annuity is invested in earned returns of 10 percent last year and your annuity only has an 80 percent participation rate, you would have earned 8 percent. In addition to earning less than you would have by investing the same amount of money in the same index fund within a regular investment account or IRA, you'll still have to pay the high fees associated with annuities--further eroding your earnings. This is one of the reasons some financial experts advise against them for most people.


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