An Indexed Annuity (sometimes referred to as a Fixed indexed annuity) is an annuity type that earns a rate of return each year that is tied to an index. In RightCapital, advisors can enter existing indexed annuities as assets in the Profile > Net Worth section. Annuity values and income can be tracked within the Retirement > Cash Flows.
Indexed annuities are entered similarly to other types of investment accounts. Navigate to the Profile > Net Worth tab (or Step 4 of the initial data entry) and click Add Account > Investment. Within the Account type dropdown, select Qualified, Non-qualified, or Roth annuity:
After choosing an annuity as your account type, you can specify the Annuity type from the drop-down box to illustrate an Indexed annuity:
To add value to an indexed annuity, simply enter the total balance. For modeling purposes, RightCapital utilizes the return for the Large Blend index when projecting future growth on the total balance. This is the average between the Large Growth and Large Value asset classes, and will be based on your asset return assumptions for each.
The Asset allocation for Indexed Annuities is illustrative, and will not impact the future-looking retirement projections within the Retirement module.
For premium and platinum subscribers, the asset allocation will impact the Risk module, if you choose to include the indexed annuity in a client's risk analysis.
The indexed annuity type will also populate additional fields for a cap, floor, spread, and participation rate:
Entry | Description |
|---|---|
Cap | The maximum rate of return applied to the account in any year; if the Cap is set to 6%, the maximum increase in any year will be 6%. |
Floor | The minimum rate of return applied to the account in any year; if the Floor is set to 0%, in any year where the return is less than 0%, the account value will not decrease but will return 0%. |
Spread | The amount that is used to reduce the index rate each year. For example, if the spread is 2% and the index returns 7%, we will credit 5% (7% - 2%) for that year. |
Participation | The percentage that is used to reduce the index rate each year. For example, if the participation rate is 80% and the index returns 7%, we will credit 5.6% (7% * 80%) for that year. |
After the fields above have been entered, you can use the Distributions drop-down box to illustrate how money will be withdrawn from the annuity. Distribution options include regular withdrawals, annuitization, and lifetime income:
- Regular withdrawals will treat the annuity similarly to other investments. Income distribution cards can be added in the Profile > Income section to withdraw a specific amount each year from the annuity.
- Annuitization will surrender the account value in exchange for a guaranteed fixed income stream. This option will populate new fields to enter the details of the annuitization.
- Lifetime income can be used for an annuity that has a guaranteed lifetime income rider or associated benefit. This option will populate new fields to enter the details of the lifetime income guarantee.
After adding an existing indexed annuity in the Profile > Net Worth section, you can track the value of the annuity as well as the income stream within the Retirement > Cash Flows tab.
The value of the Annuity can be tracked within the Cash Flows > Accounts tab, by viewing the Ending Balance by Accounts:
The income stream from the annuity can be tracked within the Cash Flows > Summary tab, by clicking into the underlined header for Income Inflows:
