Index Allocations can make or break your earnings on your Annuity or IUL.

You could find you're making little to no money, even though the market is going upward.

We'll summarize how this can happen and how you can improve performance.

First let's look at the biggest reasons people choose to take advantage of Indexed Annuities and IUL's.

The first is you can't lose any money due to the market going down. Other financial tools like mutual funds and 401k plans are tied to a market index or multiple indexes. When the market goes up they can make money. When the market goes down they can lose a great deal of money. Most of us know someone who has lost big chunks of their savings due to market downturns. You may have yourself.

Protection from loss is especially critical as you near or enter your retirement years. There just isn't enough time to make up for large losses. What if the market took a huge turn downwards right before or right after you retire? A large portion of your savings could disappear right when you need it most. And at that point no one wants to put their remaining money at risk.

So protection from loss is the first reason you would look at Indexed Annuities or IUL's.

Next of course is growth on your savings.

There are fixed annuities, which offer a guaranteed return with a low interest rate. Then there are Indexed Annuities, which can provide much higher returns.

Indexed Annuities lock in your balance after a period has gone by, tied to the indexes you choose.

When that period has a gain, your account balance has gone up and the new balance is now locked in. If the market went down during that period, your balance stays where it was at the beginning of the period.

Even small gains create a compounding effect over time, because you don't suffer the losses in a down market.

In the chart below, the green line represents an indexed annuity. The red line represents a stock index. You can see how the stock index goes up and down over time, which means an account tied directly to the stock market index would gain and lose money as the market changes.

The Indexed Annuity doesn't have a loss during a downturn, it just doesn't earn during that time. When an up period hits, it earns money based on the account balance, which keeps going up as each period is locked in. This is why Indexed Annuities are so popular. IUL's work on the same principal.

Within all of this are participation rates, caps, floors, and other aspects of the contract. These are easy to understand when you go through the illustration run by your agent.

What is not often understood are the factors which can get in the way of earnings, even when the market is up.

We're going to talk about the importance of index allocations and not go into the analysis of indexes. We do the analysis for you so you can focus on choosing which you want to take advantage of.

Index allocations are the indexes you choose to tie your account, to as well as the percentage of each index to apply to your account.

Most people pick an initial index, usually at the recommendation of the agent who set up their annuity or iul. The agent may have done NO analysis ahead of time, or may not even understand the relationship of volatility, participation rates, and other factors which will affect the performance of your account, even when the market is rising.

The reason is most agents are not taught about how the money actually flows behind the scenes and what really drives your accounts growth. They are often instructed to use a popular index and then never look at it again.

What should happen, to safeguard your account and your money, is the index allocation should be based on an actual analysis of the indexes which are available for your account. Then you should receive some information you can review to help you make those decisions, like you see in the image below.

Then each year you should receive an analysis to review before your anniversary period arrives where you can make changes. You can't know what the future will hold for an index, but you need to monitor what has been going on in your account, and make course corrections as needed to give yourself the best opportunity for growth going forward.

The right data matters.

A big part of that is having the best analysis you can get, based on the most current data at the time of making your choices. We don't just use the illustration and charts from the carrier, which is what the majority of agents do.

We use a proprietary system created by a company with over 20 years in annuities. Rates are updated, the over 200 indexes are in the system, and we can create easy to understand reports and charts to help guide in choosing your index allocations from the start.

Then every year we're able to put your current statement in the system and give you a new analysis to base your allocation choices on. You may be good where you are or you may need to make a change. Without an analysis you'll be like most people, not having any idea if they could be doing better or how much they may have lost, by not making a correction when they could have.

If you don't feel like your annuity is performing as it should, contact us below.

If you're looking at getting an Annuity or IUL, contact us before you commit.