A. Buffer annuities are also called variable indexed annuities, they are between variable annuities and indexed annuities. Here's a quick rundown of the differences among them:
- A variable annuity offers investment options for your premiums in one or more subaccounts. Those investments are usually stocks, bonds, or mutual funds. You are not taxed on the gains your investments make until you begin withdrawing funds; however, if your subaccounts perform poorly, you could lose money.
- An indexed annuity offers a percentage of interest on your principal that’s tied to the growth in the S&P 500, ranging from a capped percentage of the index’s gain (often 5% or 6%) to a low of 0% if the index experiences a loss.
- A buffer (variable indexed) annuity offers a percentage of growth or loss that’s tied to the growth or loss of an investment such as options contracts, REIT indexes, precious metals, emerging markets, and more. Growth is capped at a higher percentage than an indexed annuity, usually 8% or 9%. The account may also experience a loss. That loss is calculated by subtracting a certain percentage (the “buffer”) from the overall percentage loss of the index. There may also be a stated “floor” that caps losses during a downturn.