I think we can all agree we live in unprecedented times with a worldwide pandemic, anarchy in our cities, and a stock market that is on a roller coaster ride every other day.
As retirees, this can become very overwhelming as we question how to protect our hard-earned retirement funds.
Do the following fears keep you up at night?
1. Retirees are living longer with the advances in medicine and technology; it is not uncommon to live well into the nineties.
2. Fear of running out of money as we live longer.
3. Taxes are also a huge issue as our country is now at approximately a $28 Trillion deficit and who will pay that bill, most likely the middle class.
4. Long term care is another concern, with over 70% of retirees will need some long-term care in their golden years.
5. Retirees are spending at least as much after retirement as before retirement with health care expenditures are skyrocketing.
Is there any hope? Is there an alternative to protecting our principal? Guaranteeing Income for life? Well, the good news… there is! It is called a Fixed Index Annuity. Notice I did not say a variable annuity as they have gotten a bad rap because you are still in the market, taking that horrifying roller coaster ride.
How Indexed Annuities Work
Index annuities offer a guaranteed interest rate plus potentially additional interest credits, based on a percentage of the gains of a specified stock market index such as the S&P 500® or other financial market indexes. Index annuities give you the potential for additional interest crediting without risk due to market declines. One of the most attractive benefits of index annuities is that there is no loss of principal because of the stock market declines.
It does not matter how far the stock market might decline, the insurance company’s clients are not affected, because your annuity premiums do not directly participate in the stock market. This protection from downside losses is one feature that distinguishes index annuities
from variable annuities. With variable annuities, your funds purchase investments, called “subaccounts.” For this reason, a variable annuity may have an opportunity to increase in value when the market rises. However, if the market declines, your portfolio declines as well.
Index annuities have a floor of zero whereby your invested money can never go below zero if there are zero fees in the policy. In other words, you can never lose your principal. Indexed annuities also allow you to share in some of the upsides of the market, which in layman’s term we call a ceiling. For example, depending on the insurance company, it may be a percentage of saying the S&P 500 or some other index in the market. However, again you take no risk of market loss only the upside spelled out in the contract, and you never give back any gains.
In these unprecedented times with the health care crisis and market volatility, many retirees are scared to death of a repeat of the tech bubble crash of early 2000 or the housing crisis in 2008. I would propose to at least consider speaking with a financial professional who understands fixed indexed annuities, which can show you Guaranteed Income, Moderate Gains, and ZERO losses of principal.
