Minimum return guaranteed in an annuity
Quick Definition: The floor is the minimum return guaranteed in an annuity. In FIAs (Fixed Index Annuities), the floor is 0%—you can't lose money even if the market crashes. In RILAs, the floor is negative (the limit of your buffer protection).
Fixed Index Annuities guarantee you can't lose principal due to market losses. No matter how badly the market performs, the worst you can get credited is 0%. Your account value can never go down from negative market returns.
This is the defining feature of FIAs—complete downside protection. It's why they're popular with conservative investors who want market exposure without market risk.
Account value: $150,000 in a FIA tracking the S&P 500
Year 1: Market gains 12%, FIA has 11% cap
→ Credited: 11% = $16,500 gain
→ New balance: $166,500
Year 2: Market crashes -25%
→ Credited: 0% (floor protection) = $0 loss
→ Balance stays: $166,500
Year 3: Market drops another -10%
→ Credited: 0% (floor protection) = $0 loss
→ Balance stays: $166,500
Result: While the market lost 32.5% over two years, the FIA holder lost nothing. The 0% floor protected all principal.
The 0% floor applies to index-linked interest only—not to fees or withdrawals. Here's what can still reduce your account value:
But pure market losses? Zero impact on your principal.
RILAs (Registered Index-Linked Annuities) have negative floors because they use buffers instead of complete protection:
| Buffer Level | Floor | What This Means |
|---|---|---|
| 10% buffer | -10% | You can lose up to 10% (after buffer absorbs first 10%) |
| 15% buffer | -15% | You can lose up to 15% (after buffer absorbs first 15%) |
| 20% buffer | -20% | You can lose up to 20% (after buffer absorbs first 20%) |
Example: Market drops 30%, you have 10% buffer
Actually, RILA floors work differently. Some RILAs have a cap on your downside beyond the buffer. If the buffer is 10% and there's a -10% floor, your maximum loss is 10% no matter how far the market falls.
More common structure: Buffer with no floor—you participate in all losses beyond the buffer. A 50% market crash with 10% buffer means you lose 40%.
| Feature | FIA (0% Floor) | RILA (Negative Floor) |
|---|---|---|
| Protection | Complete—zero market loss | Partial—buffer + possible floor cap |
| Upside potential | Lower (caps around 10-12%) | Higher (caps around 15-20%+) |
| Who it's for | Cannot tolerate any loss | Can handle moderate losses |
| Worst case | You get 0%, account unchanged | You could lose 10-20%+ |
The 0% floor in FIAs isn't free. You pay for it through lower caps:
The trade-off: safety costs you upside potential.
The 0% floor matters most in severe bear markets:
2008 Financial Crisis (S&P 500 down 37%):
FIA holders: 0% return
Stock investors: -37% loss
Difference: FIA saved $74,000 on a $200K investment
2022 Bear Market (S&P 500 down 18%):
FIA holders: 0% return
Stock investors: -18% loss
Difference: FIA saved $36,000 on a $200K investment
But in strong bull markets, the floor's cost becomes apparent:
2021 Bull Market (S&P 500 up 27%):
FIA holders: ~11% (capped)
Stock investors: 27% gain
Difference: Gave up $32,000 on a $200K investment
The 0% floor makes sense if you:
The floor might be overkill if you:
The 0% floor in FIAs is complete principal protection from market losses. You trade unlimited upside for guaranteed safety. It's not the right choice for everyone—especially those with long time horizons—but for conservative investors or those near retirement, the floor's protection can be worth its cost.
RILAs with negative floors offer a middle ground: some protection, more upside potential, but not zero-loss guarantee.