When it comes to retirement income planning, there is one resource whose value you cannot overestimate: time. Many individuals build their retirement plans over years, through regular contributions and investments. All of this work can be eroded by market downturns and corrections, especially if your portfolio is over-exposed to market forces. The time it could take to recover your losses—if even possible—could place you well outside of your ideal retirement age.
The piece below illustrates three volatile periods in market history, showing how one potential solution—a fixed index annuity—weathers the storm.
What is an Annuity?
An annuity is a financial product that can be used to accumulate cash value on a tax-deferred basis. Annuities can be an option for individuals to secure retirement income or to convert existing assets into a stream of income. There are four main changes everyone faces in retirement—longer life expectancies, taxes, inflation, and market volatility—and annuities help to address all four of these factors.
By accumulating tax-deferred, certain annuities can grow larger before facing a tax liability. This, along with an interest rate of growth, helps to hedge against inflation. And because many annuities have guaranteed rates of return and are not directly exposed to the stock market, they are less susceptible to market volatility. With lifetime income benefit riders, it is possible to secure a source of income that cannot be outlived.
Fixed Index Annuity
A Fixed Indexed Annuity, sometimes referred to as an Equity-Indexed Annuity, gathers interest based on the performance of a specific stock market index, such as the Dow Jones Industrial Average or the Standard & Poors 500. Some FIAs include a guaranteed rate of return or floor, securing a base return. While a Fixed Indexed Annuity is tied to the performance of a stock index, it does not directly participate in the markets. Additionally, FIAs are protected against negative index movements. Within FIAs, there will be many interest rates capturing and crediting methods to choose from.
Bear in the mind that the information above is simply a high-level discussion of annuities. To properly address whether an annuity is right for your specific needs or to determine what type of annuity best helps achieve your financial objects, you should consult with a financial professional.
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