The interest rate you receive from an index annuity varies because your investment is linked to the S&P 500, or a similar stock market index. The returns will also differ from product to product, because of different crediting methods. An index annuity balance is impossible to predict, but we can look back at how they would perform in past market conditions.
In a hypothetical comparison of an index annuity vs in a direct S&P 500 investment between 1999 and 2009.
The index annuity in this example has typical contract terms: 100% participation rate, 9% cap, and it resets annually.
A $100,000 investment directly into the S&P 500 in 1999 would have resulted in an approximate balance of $73,459 by 2009. The investment would have lost over $15,000 not to mention inflation. On the other hand, your index annuity would be worth over $150,000, a difference of over $77,000.
The index annuity never loses ground when the S & P has a negative year. The reason for this is that it 'locks' in pervious years' returns, meaning it will never go lower than its highest point. Sound too good to be true?
The trade off is that in periods of substantial market growth, the annuity will only participate in a portion of it.
However, there is comfort in safety. And, you can participate in the market, yet your money will always be safe with an index annuity.
