October 11, 2025 • 10 mins
Hey Mike, aren’t buffered ETFs and indexed annuities basically the same thing? Learn how these two complex tools are similar, what protections they offer, and who should consider making one or both part of their retirement plan.
Text your questions to 913-363-1234.
Request Your Wealth Analysis by going to www.retireontime.com
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Mike (00:05):
Welcome to How to Retire On Time, a show that answers
your retirement questions. We'rehere to move past that
oversimplified advice you'veheard hundreds of times.
Instead, we want to dive intothe nitty gritty because, well,
frankly, there there's no suchthing as a perfect investment
product or strategy. There arecertain things you just need to
know, so we wanna dive intothat. As always, text your
questions to (913) 363-1234.
And remember, this is notfinancial advice. This is just a
(00:27):
show, so do your research.David, what do we got today?
David (00:31):
Hey, Mike. Aren't buffered ETFs and indexed
annuities basically the samething?
Mike (00:37):
Yeah. Okay. Next question. No. Let's break it down, though.
There's some interestingcomponents to this that you need
to understand. So first off,yes, they're kind of the same
thing. There's two ways theseare gonna operate. I'm gonna get
a little technical, but you needto understand this. Okay?
Basically, they're built aroundoption contracts and the bond
(00:58):
market. So a buffered ETF reallyis going to sell option
contracts to where let's use anexample. Let's say you get up to
7% growth, but no downside risk.This is a hypothetical example.
These offers change often.
Okay?
David (01:12):
So the buffered ETF offers 7% upside.
Mike (01:14):
Yeah. So if if the S and P goes up 7% or more, your cap is
7%. Uh-huh. What they've reallydone is they've sold the
potential profits of everythingabove 7% to someone else.
They've sold that.
They made money on that. Thenthey turn around and they buy
protection to say if the marketscrash, someone else has taken
the hit. Now you might think,well, I can do that on my own.
(01:36):
No. You can't.
Because you need many multipletens of millions of dollars at
least to get the reasonablepriced contracts. On your own,
maybe you can do like a fourfour, 5% kind of situation.
Maybe. Even that. And that'sstill pushing it.
(01:56):
Because retail investors don'thave the quantity or the volume
to get the better deal.
David (02:02):
So you pool your money with other retail investors and
and
Mike (02:05):
Yeah. Yeah. That's that's why it's better to do an actual
buffered ETF, if that's what youwant. Now the benefits of a
buffered ETF, yeah, it justrolls over every year, which is
kinda nice. So you can utilizethem with long term capital
gains.
You get up to 7% in thisexample. No downside risk. Or
maybe it's like the market hasto crash more than 60% for you
to start losing money. So if themarkets go down 55%, you didn't
(02:27):
lose anything for that year,twelve month period of time. If
the markets go down 65%, youjust lost 5%.
That's that's a pretty gooddeal, all things considered,
when it comes to protection. Butyou're capped at this 7% growth.
Now the other way that this isdone is where whether it's a
buffered ETF or a bank or aninsurance company, they could
(02:47):
buy bonds or notes. So a a fixedamount for a certain period of
time, fixed interest rate. Solet's say you get a $100,000.
This is kind of tactical, buthopefully you can follow me on
this. Let's say you've got$100,000, and you put 95,000 of
it into a note that's gonna giveyou 5.2%. Okay. After twelve
(03:09):
months, that note will thenbecome 95,000 will become a
100,000. So the principal isprotected.
You see how that works? Yep.95,000 becomes a 100,000 in one
year at that rate. Okay. So thenthey'll take the rest at $5,000,
and they'll buy option contractsfor the right to buy.
If the markets go up, they'llexercise it. Everyone makes
(03:30):
money. Mhmm. K? The problem,though, and people miss this, is
if interest rates go down, ifthe ten year treasury goes down,
these instruments aren't gonnaget that 5.2% rate.
They might get a 1% rate. Theyget a 1% rate. Maybe they end up
getting, like, $500 left thatthey can use to buy option
contracts. So the upsidepotential is going to decrease
(03:53):
because they're constrained bythe financial markets,
specifically the bond markets.When you understand how
instruments actually work, whenyou can pop open the hood, like
when I open up a car, I canpoint to an engine.
I could change the oil, but Ican't explain all of the
different nuances of it. Mhmm.But we pop open the engine of a
financial instrument, I canexplain every little detail to
(04:13):
it. When you understand thosedetails, you understand the
risks you may or may not betaking with the different
routes. So, yeah, generallyspeaking, they're kind of the
same, but when you get into thedetails, you need to understand
the length and the underlyingmechanisms that allow these
offers to exist.
Why am I saying that? Fixedindex annuities have a couple of
(04:35):
variables that people need tounderstand. These are risks that
are not talked about enough inmy opinion. So some of them
might offer like, let's and I'mbeing fictitious here. Let's say
they offer 10% on the upside ofthe S and P 500 K.
But no downside. Now that'sbetter. That's 3% better than a
buffered ETF by way ofcomparison. Well, how can they
(04:56):
do that? A fixed index annuityis illiquid for a certain period
of time.
Yeah. So they're buying theinstruments under different time
frames because they know you'reprobably not gonna pull your
money out, and if you do, you'repenalized for Yeah. There's a
reason why the penalty is there.There's a reason why they're
structured as such, because theyneed the money to stay there to
buy certain contracts tostructure the product
(05:19):
appropriately.
David (05:20):
They incentivize you to not pull it up by having that
penalty.
Mike (05:23):
Yeah. Yeah. So if you want better rates, you'll need to
give up liquidity. You can'thave your cake and eat it too.
So some people might buy somebuffered ETFs.
Some people might buy some indexannuities because they want a
slightly better rate, and theyknow they don't need all of
their money next year, but theymight need some of it later on.
They're looking for protectionwith a little bit better growth
(05:44):
potential. But then here's thekicker. Depending on the
product, if you really divedeep, some of them will only buy
the contracts year over year,and so maybe in three years of
the contract, they'llsignificantly drop rates because
they can't maintain that rate.They over promised.
The Fed dropped rates. The tenyear treasury is lower, and so
(06:05):
now they they don't have theroom to just do this. So you now
went from that 10% cap, it'slike a 3% cap.
David (06:11):
This is the insurance company we're
Mike (06:12):
talking This is an index annuity now.
David (06:14):
Okay.
Mike (06:15):
So all the people listening in that are pissed
David (06:17):
Yeah. When you
Mike (06:18):
look at your statements, I can only get 3% growth, That's
why. The product you bought,there was not enough due
diligence to understand how theproduct was actually
functioning. And then wheninterest rates changed, you you
got your legs cut out fromunderneath you. It's still
illiquid, and you're gettingless upside potential.
David (06:37):
Is this why it feels like insurance companies are always
trying to like, you know, quoteunquote rip us off?
Mike (06:42):
It's just they're not being explained well.
David (06:44):
Okay.
Mike (06:45):
K? It's like medicine. Hey, this is gonna do a benefit
for you. Don't ask me any otherquestions. Modern medicine is a
miracle.
Mhmm. Modern medicine has sideeffects. Mhmm. You need to
understand the side effects andweigh if you're willing to go
with it or not. It's thatsimple.
So there are index annuitiesthat will offer you more
(07:09):
stability or morepredictability. Like, let's say
instead of the 10% growth, maybeyou get like a six and a half.
If the markets are up, you'regonna get six and a half, seven
and half percent guaranteed forthe life of the contract.
Markets are up, that's yourreturn. Markets are down, you
don't get a return, but youdon't lose money.
You can have locked rates, but alocked rate is gonna be less
than the potential rate. So youhave to understand and sit on
(07:35):
these things and really askquestions or work with someone
that's so blatantly honest likewe're being right now about how
they work and what realisticexpectations are, so that you
can buy the right products basedon your lifestyle and legacy
goals, and also kind of justmaneuver everything in a way
that it fits your objectives.Put the plan together first,
(07:56):
then explore the efficiencies,such tax efficiencies and so on,
then find the right products.And there's always a benefit,
and there's always a detriment,and what's right for you is
gonna be different than what'sright for someone else. It may
be buffered ETFs.
It may be indexed annuities. Ifyou want a death benefit, maybe
it's indexed universal lifeinsurance. Just remember,
though, you don't buy thatunless you need the death
(08:16):
benefit. You can't manipulateWall Street. You can't
manipulate the markets.
They are. And the second youthink you're getting a deal,
you're the one that's gettingtaken advantage of.
David (08:27):
Yeah. So a little humility is in order then maybe.
Mike (08:30):
Humility or stopping and asking the question, what don't
I know that if I knew wouldchange my decision? If you're
ever pressured in, like, rightnow, interest rates are going
down, which means the offeringsare going down. Because the
Fed's lowering rates and startedthat, maybe the ten year
treasury will start lowering aswell. We don't know That's an
(08:51):
independent thing, but they kindof rhyme together. If that goes
down, then CDs, treasuries,fixed annuities, fixed index
annuities, index universal lifeinsurance structure notes,
buffer ETFs, all of these thingsthat offer protection with
growth potential will becomeless competitive because they're
tied to the bond market.
What you don't do is you don'tpanic and say, oh my gosh. I
(09:12):
don't wanna miss out on theopportunity. Let me just buy it
right now. It's better to know,in my opinion, what you're
getting into than to do a panicbuy and risk the regret.
David (09:21):
So
Mike (09:22):
be mindful of it, but they are very similar buffered ETFs
and fixed index annuities, butthey have their differences, and
their differences matter. That'sall the time we've got for the
show today. If you enjoyed theshow, consider subscribing to it
wherever you get your podcast.Just search for how to retire on
time. Discover if your portfoliois built to weather flat market
(09:46):
cycles if you're missing taxminimization opportunities that
you may not even know exist.
Explore strategies that may beable to help you lower your
overall risk while potentiallyincreasing your overall growth
and lifestyle flexibility. Thisis not your ordinary financial
analysis. Learn more about YourWealth Analysis and what it
could do for you regardless ofyour age, asset, or target
(10:08):
retirement date. Go toww.yourwealthanalysis.com today
to learn more and get started.
Welcome to How to Retire On Time, a show that answers
your retirement questions. We'rehere to move past that
oversimplified advice you'veheard hundreds of times.
Instead, we want to dive intothe nitty gritty because, well,
frankly, there there's no suchthing as a perfect investment
product or strategy. There arecertain things you just need to
know, so we wanna dive intothat. As always, text your
questions to (913) 363-1234.
And remember, this is notfinancial advice. This is just a
(00:27):
show, so do your research.David, what do we got today?
David (00:31):
Hey, Mike. Aren't buffered ETFs and indexed
annuities basically the samething?
Mike (00:37):
Yeah. Okay. Next question. No. Let's break it down, though.
There's some interestingcomponents to this that you need
to understand. So first off,yes, they're kind of the same
thing. There's two ways theseare gonna operate. I'm gonna get
a little technical, but you needto understand this. Okay?
Basically, they're built aroundoption contracts and the bond
(00:58):
market. So a buffered ETF reallyis going to sell option
contracts to where let's use anexample. Let's say you get up to
7% growth, but no downside risk.This is a hypothetical example.
These offers change often.
Okay?
David (01:12):
So the buffered ETF offers 7% upside.
Mike (01:14):
Yeah. So if if the S and P goes up 7% or more, your cap is
7%. Uh-huh. What they've reallydone is they've sold the
potential profits of everythingabove 7% to someone else.
They've sold that.
They made money on that. Thenthey turn around and they buy
protection to say if the marketscrash, someone else has taken
the hit. Now you might think,well, I can do that on my own.
(01:36):
No. You can't.
Because you need many multipletens of millions of dollars at
least to get the reasonablepriced contracts. On your own,
maybe you can do like a fourfour, 5% kind of situation.
Maybe. Even that. And that'sstill pushing it.
(01:56):
Because retail investors don'thave the quantity or the volume
to get the better deal.
David (02:02):
So you pool your money with other retail investors and
and
Mike (02:05):
Yeah. Yeah. That's that's why it's better to do an actual
buffered ETF, if that's what youwant. Now the benefits of a
buffered ETF, yeah, it justrolls over every year, which is
kinda nice. So you can utilizethem with long term capital
gains.
You get up to 7% in thisexample. No downside risk. Or
maybe it's like the market hasto crash more than 60% for you
to start losing money. So if themarkets go down 55%, you didn't
(02:27):
lose anything for that year,twelve month period of time. If
the markets go down 65%, youjust lost 5%.
That's that's a pretty gooddeal, all things considered,
when it comes to protection. Butyou're capped at this 7% growth.
Now the other way that this isdone is where whether it's a
buffered ETF or a bank or aninsurance company, they could
(02:47):
buy bonds or notes. So a a fixedamount for a certain period of
time, fixed interest rate. Solet's say you get a $100,000.
This is kind of tactical, buthopefully you can follow me on
this. Let's say you've got$100,000, and you put 95,000 of
it into a note that's gonna giveyou 5.2%. Okay. After twelve
(03:09):
months, that note will thenbecome 95,000 will become a
100,000. So the principal isprotected.
You see how that works? Yep.95,000 becomes a 100,000 in one
year at that rate. Okay. So thenthey'll take the rest at $5,000,
and they'll buy option contractsfor the right to buy.
If the markets go up, they'llexercise it. Everyone makes
(03:30):
money. Mhmm. K? The problem,though, and people miss this, is
if interest rates go down, ifthe ten year treasury goes down,
these instruments aren't gonnaget that 5.2% rate.
They might get a 1% rate. Theyget a 1% rate. Maybe they end up
getting, like, $500 left thatthey can use to buy option
contracts. So the upsidepotential is going to decrease
(03:53):
because they're constrained bythe financial markets,
specifically the bond markets.When you understand how
instruments actually work, whenyou can pop open the hood, like
when I open up a car, I canpoint to an engine.
I could change the oil, but Ican't explain all of the
different nuances of it. Mhmm.But we pop open the engine of a
financial instrument, I canexplain every little detail to
(04:13):
it. When you understand thosedetails, you understand the
risks you may or may not betaking with the different
routes. So, yeah, generallyspeaking, they're kind of the
same, but when you get into thedetails, you need to understand
the length and the underlyingmechanisms that allow these
offers to exist.
Why am I saying that? Fixedindex annuities have a couple of
(04:35):
variables that people need tounderstand. These are risks that
are not talked about enough inmy opinion. So some of them
might offer like, let's and I'mbeing fictitious here. Let's say
they offer 10% on the upside ofthe S and P 500 K.
But no downside. Now that'sbetter. That's 3% better than a
buffered ETF by way ofcomparison. Well, how can they
(04:56):
do that? A fixed index annuityis illiquid for a certain period
of time.
Yeah. So they're buying theinstruments under different time
frames because they know you'reprobably not gonna pull your
money out, and if you do, you'repenalized for Yeah. There's a
reason why the penalty is there.There's a reason why they're
structured as such, because theyneed the money to stay there to
buy certain contracts tostructure the product
(05:19):
appropriately.
David (05:20):
They incentivize you to not pull it up by having that
penalty.
Mike (05:23):
Yeah. Yeah. So if you want better rates, you'll need to
give up liquidity. You can'thave your cake and eat it too.
So some people might buy somebuffered ETFs.
Some people might buy some indexannuities because they want a
slightly better rate, and theyknow they don't need all of
their money next year, but theymight need some of it later on.
They're looking for protectionwith a little bit better growth
(05:44):
potential. But then here's thekicker. Depending on the
product, if you really divedeep, some of them will only buy
the contracts year over year,and so maybe in three years of
the contract, they'llsignificantly drop rates because
they can't maintain that rate.They over promised.
The Fed dropped rates. The tenyear treasury is lower, and so
(06:05):
now they they don't have theroom to just do this. So you now
went from that 10% cap, it'slike a 3% cap.
David (06:11):
This is the insurance company we're
Mike (06:12):
talking This is an index annuity now.
David (06:14):
Okay.
Mike (06:15):
So all the people listening in that are pissed
David (06:17):
Yeah. When you
Mike (06:18):
look at your statements, I can only get 3% growth, That's
why. The product you bought,there was not enough due
diligence to understand how theproduct was actually
functioning. And then wheninterest rates changed, you you
got your legs cut out fromunderneath you. It's still
illiquid, and you're gettingless upside potential.
David (06:37):
Is this why it feels like insurance companies are always
trying to like, you know, quoteunquote rip us off?
Mike (06:42):
It's just they're not being explained well.
David (06:44):
Okay.
Mike (06:45):
K? It's like medicine. Hey, this is gonna do a benefit
for you. Don't ask me any otherquestions. Modern medicine is a
miracle.
Mhmm. Modern medicine has sideeffects. Mhmm. You need to
understand the side effects andweigh if you're willing to go
with it or not. It's thatsimple.
So there are index annuitiesthat will offer you more
(07:09):
stability or morepredictability. Like, let's say
instead of the 10% growth, maybeyou get like a six and a half.
If the markets are up, you'regonna get six and a half, seven
and half percent guaranteed forthe life of the contract.
Markets are up, that's yourreturn. Markets are down, you
don't get a return, but youdon't lose money.
You can have locked rates, but alocked rate is gonna be less
than the potential rate. So youhave to understand and sit on
(07:35):
these things and really askquestions or work with someone
that's so blatantly honest likewe're being right now about how
they work and what realisticexpectations are, so that you
can buy the right products basedon your lifestyle and legacy
goals, and also kind of justmaneuver everything in a way
that it fits your objectives.Put the plan together first,
(07:56):
then explore the efficiencies,such tax efficiencies and so on,
then find the right products.And there's always a benefit,
and there's always a detriment,and what's right for you is
gonna be different than what'sright for someone else. It may
be buffered ETFs.
It may be indexed annuities. Ifyou want a death benefit, maybe
it's indexed universal lifeinsurance. Just remember,
though, you don't buy thatunless you need the death
(08:16):
benefit. You can't manipulateWall Street. You can't
manipulate the markets.
They are. And the second youthink you're getting a deal,
you're the one that's gettingtaken advantage of.
David (08:27):
Yeah. So a little humility is in order then maybe.
Mike (08:30):
Humility or stopping and asking the question, what don't
I know that if I knew wouldchange my decision? If you're
ever pressured in, like, rightnow, interest rates are going
down, which means the offeringsare going down. Because the
Fed's lowering rates and startedthat, maybe the ten year
treasury will start lowering aswell. We don't know That's an
(08:51):
independent thing, but they kindof rhyme together. If that goes
down, then CDs, treasuries,fixed annuities, fixed index
annuities, index universal lifeinsurance structure notes,
buffer ETFs, all of these thingsthat offer protection with
growth potential will becomeless competitive because they're
tied to the bond market.
What you don't do is you don'tpanic and say, oh my gosh. I
(09:12):
don't wanna miss out on theopportunity. Let me just buy it
right now. It's better to know,in my opinion, what you're
getting into than to do a panicbuy and risk the regret.
David (09:21):
So
Mike (09:22):
be mindful of it, but they are very similar buffered ETFs
and fixed index annuities, butthey have their differences, and
their differences matter. That'sall the time we've got for the
show today. If you enjoyed theshow, consider subscribing to it
wherever you get your podcast.Just search for how to retire on
time. Discover if your portfoliois built to weather flat market
(09:46):
cycles if you're missing taxminimization opportunities that
you may not even know exist.
Explore strategies that may beable to help you lower your
overall risk while potentiallyincreasing your overall growth
and lifestyle flexibility. Thisis not your ordinary financial
analysis. Learn more about YourWealth Analysis and what it
could do for you regardless ofyour age, asset, or target
(10:08):
retirement date. Go toww.yourwealthanalysis.com today
to learn more and get started.
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