In choosing the right place to grow your retirement nest egg, there are a host of financial products available. What are the best options for you and your money? You may want the guarantee of a fixed rate of return. You might also like the potential for market gains. The dilemma is how to achieve both safety and market gains at the same time. As you near retirement or are enjoying your retirement years, it is essential to plan appropriately not to be overly exposed to stock market downturns. There are investment choices that will help you sleep at night knowing that your retirement nest egg is secure.
The answer is a product called an equity-indexed annuity. These 100% safe products will track and credit market returns, fully protecting your principal if the market declines. These incredible financial vehicles provide tax deferral, guarantees, probate advantages, and guaranteed income payments for life.
The first feature of these annuities is the safety of the principal. If your equity-indexed annuity is tied to the market, say the S&P 500, and it should go down, your principal investment will be 100% protected from loss. In addition, each year you receive an interest credit, those gains are also protected.
In addition, to guarantee principal, the interest crediting for equity-indexed annuities is based on the growth of an index (often the S&P 500) for a period of time, typically one year. For example, if your premium began on June 16, 2020, the interest will be calculated the following June 16, 2021. If the index is up, an interest credit is given, locked in, and the new one-year cycle begins again.
As you consider placing money into an equity-indexed annuity, several other considerations may come into play:
- The Insurance Company Holding Your Money. Annuities are offered by large life insurance companies and offer guarantees on income and death benefits. It is essential that you choose a large, reputable life insurance company that specializes in annuities.
- Expenses and Fees: Most equity-indexed annuities DO NOT have fees. However, they do impose a surrender penalty if you withdraw funds in excess of the “free withdrawal” limits in the contract.
- Taxes. All annuities are suited for people approaching or in their retirement years. Taking withdrawals before age 59 ½ could result in income taxes.
Equity-indexed annuities have become incredibly popular for retirees and pre-retirees to gain protection as well as upside market gain potential. If you want the best of both worlds, gains without market risk, you might investigate these financial products with a qualified advisor.
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