Annual Reset is a very popular feature on a fixed indexed annuity.
How does Annual Reset work?
Annual Reset in when an annuity gains are credited to the account and locked in on each anniversary. But it’s more than that. On each anniversary, the annuity resets it’s starting point. This is especially powerful after a down year in the market. For example, let’s say a product has a 5% annual cap, 100% participation with no fees or spreads. Now assume the annuity has a starting point of 1000 using the S&P500. Lets say that on the first anniversary, the S&P500 is now at 1100. The product will make 5% (due to the 5% annual cap) for that year and the gains are locked in permanently. Let’s assume in the second year the S&P500 crashes to 900. The indexed annuity will have no losses and it will now reset for the third year. Let’s now assume that the market rebounds 90 points to 990. The annuity with be credited another 5%. In this example, the annuity is now up over 10% (with compounding) even though the market is still down 10 points from where it started.