• 5-Minute Article
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  • Apr 23, 2024

How to Build a Registered Index-Linked Annuity That Works for You

RILAs offer choices that could help you reach your financial goals.

Questions this article can help you answer:
  • What are some decisions to make when considering a registered index-linked annuity (RILA)?
  • Are there any statistics about the historical performance of RILAs?
  • What are some common indices that RILAs can track?

Adding a registered index-linked annuity (RILA) to your portfolio can provide a level of downside protection while allowing you to participate in market growth opportunities that may help you reach your financial goals. You can choose from options to customize a RILA (also known as a buffered annuity) to fit your individual needs and risk tolerance. In addition to helping you determine how much of your portfolio could be allocated to a RILA, a financial professional can help you select the options that work best for you.

How to Customize Your RILA

Below are some factors to consider when working with a financial professional. For information on some of the key words and phrases found in this article, view our RILA dictionary.

How to Customize Your RILA

What Happens Next?

After selecting the term, level of protection, and index associated with a RILA, you should also consider the crediting strategy. Depending on the chosen crediting strategy, your account value may be credited based on the performance of the selected index. A Cap Rate crediting strategy is the maximum rate that can be earned at the end of the term based on index performance. For example, if the Cap Rate is 100% and the index value is up 75% at the end of the term, the account value would increase by 75%. If the index is up more than 100%, the account value would increase by 100%. Some companies may offer other crediting strategies such as Step Rate or Participation Rate.

How to Customize Your RILA

History Shows the Potential Effectiveness of a RILA

While no one can guarantee the performance of the market over a given period of time, historically speaking, the average return on a rolling monthly basis with a 6-year term for the S&P 500 Index from January 1957 through December 2022 was 58.8%.1 For example, if you owned a RILA tracking the S&P 500 Index with a 6-year term and a Cap Rate of 200%, and the index value was up 58.8% at the end of the term, your account value would be credited the full 58.8%. If your Cap Rate with the same RILA was 50%, your account would be credited with a 50% increase in value. In addition, analysis of data over the same time period shows that the owner of a RILA contract with a 25% buffer and a 6-year term would have avoided losses 99.2% of the time.1

Choosing a RILA for a portion of your portfolio may provide you with the opportunity to retain exposure to growth in the equity market with a level of protection built in. The level of protection offered by a RILA may help you stay invested for the long term, knowing that you can better withstand the highs and lows of volatile or even down markets. A financial professional can help explain how the choices you make to customize a RILA could impact the potential exposure to gains or losses during the term.