With an indexed annuity, what factor primarily determines the returns?

The returns of an indexed annuity primarily hinge on the performance of the linked stock market index. Indexed annuities are designed to offer a level of growth based on the fluctuations of a specific stock market index, such as the S&P 500. This means that as the index performs well, the annuity can provide higher returns, usually capped at a certain percentage. This connection to market performance allows annuitants to participate in potential market gains while typically providing a degree of protection against losses, as the returns are often secured with a minimum guaranteed interest rate or protection against market downturns.

While factors like the health of the financial institution or the initial investment amount can influence the specifics of an annuity, they do not primarily determine the return itself. The health of the insurer may affect the overall security of the investment, but it’s the index's performance that directly affects the growth of the annuity's value. Additionally, the time horizon may impact when returns are realized but does not influence the amount of return based on performance. Thus, the performance of the linked stock market index is the crucial element that drives potential earnings in indexed annuities.