Indexed annuities are retirement savings vehicles and are not meant for short term savings. Most indexed annuities do provide a penalty-free amount that may be withdrawn each year (for example, the right to withdraw 10% of the annuity’s value per year). These products may also waive surrender charges if the policy is annualized (converted into an immediate annuity that would generate income payments over a specified period of time which is elected by the policyholder). Some annuities provide additional riders to have surrender charges waived (generally at no additional cost) in the event the annuitant is confined to a nursing home or is diagnosed with a terminal illness.
In recent years, many indexed annuities can be issued with a rider designed to supply a lifetime income payment to the policyholder that does not require Annunciation, thus leaving the policyholder in control of the balance of the account. These "income riders" are calculated separately than the indexed annuity itself, however, they use the same initial premium figures for each calculation. An "income rider" generally will provide a specified accumulation rate which is guaranteed for a certain period of years. The "income rider" calculations create an "income pool" which is strictly an accounting figure that cannot be accessed as a single lump sum by the policyholder or beneficiary. The "income pool" continues to grow annually at the specified accumulation rate until such time the guarantee period expires or the policyholder opts to begin taking "lifetime income payments" from the account. Once "lifetime income payments" begin, the "income pool" stops accumulating, and the value of the income pool is used to determine the amount of income that will be paid out annually.