Structured Capital Strategies: A Complete Guide

Investors today face a unique challenge. They want to grow their money, but they also want protection against market downturns. Traditional investments like stocks offer growth but come with high risk. Bonds provide stability but often yield low returns. To bridge this gap, insurance companies and financial firms have developed hybrid products that balance growth and protection. One of the best-known examples is Structured Capital Strategies (SCS).

Structured Capital Strategies are investment-linked annuity products that give individuals exposure to market performance while also offering built-in downside protection. They have become increasingly popular among investors planning for retirement, especially those who want some growth potential without the full volatility of stocks.

This guide explains how Structured Capital Strategies work, their benefits, their risks, and whether they may be the right choice for your portfolio.

What Are Structured Capital Strategies?

Structured Capital Strategies are a type of registered index-linked annuity (RILA). These products tie returns to the performance of a stock market index, such as the S&P 500, while including built-in features that limit losses.

Unlike traditional annuities that offer a fixed or variable rate, Structured Capital Strategies sit in the middle. They let investors:

• Participate in market growth, often up to a cap.

• Protect against some market losses with buffers or floors.

• Choose terms (such as 1-year, 3-year, or 6-year strategies) to match their goals.

The result is an investment product that combines elements of insurance, risk management, and equity exposure.

What makes these products especially interesting is how they work in practice. Investors can choose from several underlying benchmarks, such as the S&P 500 Price Return Index, the Russell 2000 Price Return Index, or other widely followed measures. These indices are trademarks of Standard & Poor’s Financial Services LLC, a subsidiary of Standard & Poor’s Financial Services LLC, and are used under license by insurers like the Equitable Financial Life Insurance Company, a major provider of Structured Capital Strategies. By linking results to recognized benchmarks, investors can clearly see how their accounts perform relative to the broader market.

Instead of unlimited upside, Structured Capital Strategies apply performance cap rates. For example, if the S&P 500 gains 18% in a year but the performance cap is 12%, the investor’s credited return is 12%. This trade-off helps fund downside protection features, such as buffers or floors, which shield investors from part of a market decline. Some investors even agree to absorb all losses beyond a certain buffer level, in exchange for higher cap rates.

Another key feature involves segment type holding accounts, which track how much of an investor’s money is allocated to a particular strategy over a chosen term. When the term ends, investors can reallocate funds to a new segment, often with updated caps and index options. These segments make the product flexible for people who want to adjust based on their overall retirement plan.

Like other annuities, SCS contracts also come with rules around withdrawal charges. If investors take money out before the contract period ends, they may face fees or reductions in credited interest. However, in some cases, exceptions are made for required minimum distributions based on applicable life expectancies or for certain hardship withdrawals. Transfers made under the Gift to Minors Act or similar estate planning tools may also be allowed, though tax rules still apply.

Speaking of taxes, gains inside an SCS contract grow tax-deferred until money is withdrawn. At that point, withdrawals are subject to federal income tax. If investors take money out before age 59½, an additional 10% penalty may apply. For many retirees, however, the tax deferral allows their lump sum contributions to grow faster than if invested in a taxable account.

Equitable has also introduced variations such as Structured Capital Strategies Plus 21, which expand the menu of options for index choices and protection levels. These products appeal to people who want more control over how much growth they are willing to trade off in return for downside protection. Investors who are already invested in Structured Capital Strategies may use the Plus 21 version to diversify across multiple strategies within the same contract.

Overall, Structured Capital Strategies offer investors a way to balance market participation and protection. They include but are not limited to features like performance caps, buffers, segment allocations, and tax advantages. For many, these products serve as a valuable piece of a long-term plan, particularly when offered by an established insurer such as the subsidiary of Equitable Holdings, which has decades of experience in retirement and wealth management.

How Structured Capital Strategies Work

1. Linking to an Index

Investors select an index, such as the S&P 500, Russell 2000, or MSCI EAFE. Returns are based on how the index performs over a set term. However, investors do not directly own stocks or funds in the index. Instead, their annuity credits interest tied to performance.

2. Caps on Gains

Most SCS products include a cap or performance limit. For example, if the cap is 12% for a year and the index rises 15%, the investor earns 12%. The cap allows insurers to fund the downside protection.

3. Downside Protection

This is where Structured Capital Strategies stand out. They may use:

• Buffers: The insurer absorbs the first portion of losses (e.g., 10%). If the market drops 15%, the investor loses only 5%.

• Floors: Losses are limited to a set amount. If the market drops 40% but the floor is -20%, the investor cannot lose more than 20%.

4. Term Lengths

Investors can choose how long they want to hold the strategy—commonly 1, 3, or 6 years. Longer terms may offer higher caps or stronger protection.

5. Tax Deferral

Like other annuities, SCS contracts grow tax-deferred. This means investors do not pay taxes on gains until withdrawals are made.

Example Scenario

Imagine an investor puts $100,000 into a 3-year Structured Capital Strategies contract tied to the S&P 500.

• Cap: 10% per year.

• Buffer: 10% downside protection.

Market Outcome 1: Index Rises 25%

The investor’s return is capped at 10% per year, resulting in about $133,100 after 3 years.

Market Outcome 2: Index Falls 8%

The buffer absorbs the entire loss, so the investor ends with the original $100,000.

Market Outcome 3: Index Falls 20%

The first 10% is absorbed by the buffer, so the investor only loses 10%, ending with $90,000.

This balance of limited upside and limited downside illustrates the core trade-off of Structured Capital Strategies.

Benefits of Structured Capital Strategies

Growth Potential with Risk Control

Investors can capture some of the growth of stock markets without being exposed to full losses. This is appealing for those who are cautious but do not want to settle for low bond yields.

Customization

SCS products often allow investors to choose different indices, levels of downside protection, and contract lengths. This flexibility lets individuals tailor the product to their risk tolerance.

Tax Deferral

Gains are not taxed until withdrawn, which helps money compound faster for retirement planning.

Retirement Planning Fit

Structured Capital Strategies can complement a retirement portfolio by providing growth potential while protecting savings during volatile markets.

Psychological Comfort

Knowing that losses are buffered or capped reduces investor anxiety, making it easier to stay invested.

Risks and Limitations

Capped Upside

Investors give up some of the market’s growth in exchange for protection. In strong bull markets, returns may lag far behind equities.

Complexity

These products can be difficult to understand, with terms like “buffers,” “floors,” “participation rates,” and “crediting methods.” Clear guidance from an advisor is essential.

Liquidity Restrictions

Most Structured Capital Strategies come with surrender periods (commonly 6–7 years). Early withdrawals may trigger fees or penalties.

No Dividends

Since investors do not directly own the underlying index, they do not receive dividends from stocks. This lowers long-term growth compared to direct equity investments.

Market Risk Still Exists

Although losses are limited, investors can still lose money if markets decline significantly beyond the buffer or floor.

Who Offers Structured Capital Strategies?

Structured Capital Strategies were popularized by Equitable (formerly AXA Equitable), one of the largest U.S. annuity providers. However, many other insurers now offer RILA products with similar features, including:

• Allianz

• Prudential

• Lincoln Financial

• Brighthouse Financial

• Jackson National

Each company offers different cap rates, protection levels, and index choices, making it important for investors to compare products.

Structured Capital Strategies vs. Other Products

vs. Fixed Indexed Annuities (FIAs)

• FIAs protect principal from all market losses but often have lower upside.

• SCS allows more growth but includes partial downside exposure.

vs. Variable Annuities

• Variable annuities offer unlimited upside but expose investors to full losses.

• SCS limits both gains and losses, sitting between FIAs and VAs.

vs. Bonds

• Bonds provide fixed interest but are sensitive to interest rate changes.

• SCS offers equity-linked growth potential with protection against sharp downturns.

Role in a Portfolio

Structured Capital Strategies work best as part of a diversified plan. They are not meant to replace all investments but to complement stocks, bonds, and other annuities.

• For conservative investors: SCS provides more growth potential than bonds.

• For moderate investors: It offers risk control without giving up market exposure completely.

• For retirees: It helps protect principal during volatile markets while still earning returns.

Key Considerations Before Buying

1. Understand the Terms: Caps, buffers, and participation rates vary by product.

2. Know Your Risk Tolerance: Choose a level of downside protection that fits your comfort.

3. Plan for Liquidity: Be prepared to keep funds in the contract for the surrender period.

4. Compare Providers: Rates and features differ widely between insurers.

5. Seek Professional Advice: These products can be complex, so working with a financial advisor is highly recommended.

Case Study: Retirement Planning with SCS

Jane, age 62, is approaching retirement. She has $500,000 in savings, with $300,000 in equities and $200,000 in bonds. Concerned about stock market volatility, she places $100,000 into a Structured Capital Strategies product with a 6-year term.

• Cap: 12%

• Buffer: 10%

If the market grows moderately, she earns capped returns that help her savings grow. If the market falls, her losses are cushioned. This helps Jane sleep better knowing that part of her portfolio has protection built in.

Future Outlook for Structured Capital Strategies

With interest rates fluctuating and market volatility rising, demand for risk-managed products like SCS is expected to grow. Baby boomers nearing retirement especially value products that blend growth with protection. Insurers are also innovating by adding new indices, flexible terms, and income riders.

As technology improves, digital platforms may make it easier to compare and purchase SCS products, similar to how newer companies have simplified the annuity space.

Final Thoughts

Structured Capital Strategies offer a middle ground between safety and growth. They are not risk-free, but they provide a unique mix of upside participation and downside protection. For investors who want equity exposure but are wary of full market risk, SCS can be a powerful tool.

Like any financial product, they require careful evaluation. Caps on growth, liquidity restrictions, and product complexity must be considered. However, with proper understanding and integration into a diversified plan, Structured Capital Strategies can help investors achieve retirement security and peace of mind.

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