Retirees may face various challenges, from increasing life spans and inflation to rising healthcare costs and market volatility. All of these factors can affect a retirement nest egg and cause savings to be depleted quickly. According to the 2023 EBRI Retirement Confidence Survey, only two-thirds of workers are confident in having enough money to live comfortably in retirement, with an increase in the cost of living being among the top concerns. Creating a diverse retirement income strategy is vital to help ensure retirees have enough money to last throughout their entire life. One solution that can make this guaranteed lifetime income is a fixed index annuity.
A fixed annuity is an insurance contract between you and an insurance company, where in exchange for a premium, the insurer provides a single income payment or a series of income payments. With this regular flow of income, annuities can offer additional financial security to your retirement income plan and help you pay for planned and unexpected expenses. Plus, a fixed annuity guarantees a minimum credited interest rate, so you can grow your retirement savings for the future.
Suppose you are interested in these features but also want higher growth potential. In that case, a fixed index annuity (FIA) can be a great option to consider adding to your retirement income strategy. FIAs provide potential interest credits without risking the loss of premium due to market downturns without investing directly in the market. In addition to providing a steady income stream, FIAs can offer the opportunity to grow your retirement savings further, protection from market volatility, and last a lifetime.
FIAs can provide the right mix of growth potential and protection for your retirement assets, helping you overcome common retirement risks that you may face in the future. With an FIA, you typically allocate your premium among interest-crediting strategies. These can be a fixed strategy with a guaranteed interest rate or index strategies that offer the potential to earn interest credit based on the growth of a specific stock market index without investing directly in the market.
If the market index goes up, you have the potential to grow your retirement savings. The growth potential of a market index is generally subject to a cap or maximum rate. However, when the market index goes down, you have premium protection from market downturns in your annuity. Your interest credits “lock-in,” and protect those earnings from market downturns. You can never earn less than zero even when faced with a bear market.
Many FIAs offer a guaranteed income stream for the rest of your life, allowing you to fill any income gaps and help make your savings last, no matter your financial situation. FIAs can be a beneficial solution for supplementing the income you receive from Social Security, pensions, retirement accounts, and other personal savings. Similar to other types of annuities, FIAs are long-term insurance products designed to provide retirement income. You choose which age to start receiving income from your annuity based on your estimated retirement age, your personal financial goals and your overall retirement readiness.
For many people, they want to maintain their standard of living in retirement and be better prepared for unexpected expenses like a health event or extended nursing care. FIAs can help you adapt to your changing needs, grow your retirement savings, and create additional income for the future to help you live comfortably throughout a potentially lengthy retirement.
Adding a FIA to a retirement income strategy may not be a good match for everyone, so it’s important to understand the ins and outs of an annuity and whether it makes sense for your personal needs and goals. To help set yourself up for success and keep on the right track toward achieving your retirement income goals, consider meeting with a financial professional for their guidance and insight. Together you can explore your future income needs, whether a FIA makes sense as part of your financial strategy, and determine how you can avoid outliving your savings in retirement. No matter what you envision for your future self, a financial professional can help ensure your retirement portfolio matches both your goals and comfort level.
The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.
Fixed index annuities are not a direct investment in the stock market. They are long term insurance products with guarantees backed by the issuing company. They provide the potential for interest to be credited based in part on the performance of specific indices, without the risk of loss of premium due to market downturns or fluctuation. Although fixed index annuities guarantee no loss of premium due to market downturns, deductions from the accumulation value for optional benefit riders or strategy fees or charges associated with allocations to enhanced crediting methods could exceed interest credited to the accumulation value, which would result in loss of premium. They may not be appropriate for all clients. Interest credits to a fixed index annuity will not mirror the actual performance of the relevant index.