Why Consider Fixed Indexed Annuities
Retirement Planning – Simple?
Seems like retirement planning used to be a lot simpler. Your parents and grandparents generally worked for the same company for their entire careers and then upon retiring were paid a pension. Which continued to provide them an annual income every year of their retirement, no matter how long they lived. Simple, right?
These days, pensions are all but extinct as the burden of retirement planning has shifted from employers to employees, even self-employed people. Now that they are responsible for their own retirements, many workers are looking for ways to recreate the annual income stream that traditional pensions provided without having to worry about running out of money in retirement. For those folks, annuities are an attractive option.
Annuities are an investment vehicle that generally offers safety from loss while providing the ability to grow money, which you may annuitize at retirement. Basically, turning what you’ve accumulated into a lifelong income stream that’s guaranteed to last as long as you do.
There are two types of annuities: Variable and Fixed. In Variable Annuities, your principal is invested in the market and can grow or shrink depending on what the market does. This is a riskier type of annuity as you can lose principal if the market drops, but you do have the potential for higher upside if performance is good.
In a Fixed Annuity, your interest rate is set and will not change despite what the market does. This is the most conservative type of annuity with the most predictable results. You’re guaranteed to never lose any principal, but growth will be relatively modest.
Fixed Indexed Annuity
There is a special type of Fixed Annuity which offers the best of both worlds. The safety of a traditional Fixed Annuity and the upside potential of a Variable Annuity. A Fixed Indexed Annuity or FIA will credit interest based on the performance of a market like a variable annuity but establish what is known as a ceiling and a floor to minimize risk.
The floor is usually around zero percent and will ensure that no principal is lost if the market goes down. In return for the safety of the floor, a ceiling would also be established that would limit the gains your money could be credited in any given period. Think of an indexed annuity as building your retirement skyscraper. When conditions are good, upward progress is made. There is no limit to how high you can build, only how much you can build in any given period. When conditions are bad, your construction may pause, but you won’t lose any progress either, and when conditions improve, construction resumes.
In a nutshell, the most important thing isn’t how big a pile of money you can create before retirement but the assurance of knowing that you’ll never outlive that pile. That peace of mind is what annuities bring to the table that other retirement vehicles don’t.
Most insurance companies are required by their state’s department of insurance to verify that the annuity you chose is suitable for your age, financial situation, and retirement goals. That being said, it is important to work with a financial advisor you trust. Not all annuities are created equal. Contact a trusted financial professional to get the specifics and see if an annuity makes sense for you and your retirement plan.
Protecting your savings, inheritance, 403Bs, 457s, 401Ks, IRAs, etc. are areas we are skilled in. We have significant resources at our fingertips to serve with wanting to minimize taxes, pass savings to loved ones, and not risk your hard earned savings and/or earnings.
