The beauty of guaranteed lifetime income with a fixed index annuity

Retirees face a variety of challenges -- from increasing life spans and inflation to rising healthcare costs and market volatility. All of these factors affect a retirement nest egg and could quickly deplete savings. According to the 2024 Retirement Confidence Survey, about 31% of workers and 40% of retirees who are not confident in their retirement feel that way due to inflation or the cost of living. A well-diversified retirement income strategy can be essential to help ensure retirees have sufficient funds to last throughout their lifetime. One effective way to help provide guaranteed lifetime income is by incorporating a fixed index annuity into your retirement plan.

Why a retirement plan might include lifetime income options?

Lifetime income in an annuity refers to a stream of payments that continues and lasts throughout a person’s retirement, no matter how long they live. Unlike traditional withdrawals from savings, which can be affected by market changes or the risk of running out of money, lifetime income could provide a predictable and reliable source of financial security. Including lifetime income options in a retirement plan may help ensure that retirees will not outlive their savings, which can be particularly valuable in the face of market volatility, rising healthcare costs, and longer life expectancies.

What is a fixed annuity?

A fixed annuity is an insurance contract between an individual and an insurance company. In exchange for a premium paid by the client, the insurer provides a single income payment or a series of income payments in the future. With this planned flow of income, annuities can offer additional financial security to a retirement income plan and potentially help pay for planned and unexpected expenses. Plus, a fixed annuity guarantees a minimum credited interest rate, so your retirement savings will grow for the future.

What is a fixed index annuity?

For those seeking higher growth along with the benefits of guaranteed income, a fixed index annuity (FIA) can be a great option to add to a retirement income strategy. FIAs provide potential interest credits without directly risking the loss of premium due to market downturns and without direct investment in the market. In addition to offering a steady income stream, FIAs can also offer the opportunity to grow retirement savings, protect against market volatility, and create guaranteed income for life.

How does a fixed index annuity work?

FIAs can provide a balanced combination of growth potential and protection for retirement assets, helping to address common retirement risks. With a FIA, premiums are typically allocated among various interest crediting strategies. This may include a fixed strategy with a guaranteed interest rate or index strategies that offer the ability to earn interest based on the performance of a specific stock market index, without investing directly in the market.

If the market index increases, potential for growth in retirement savings exists. However, the growth is typically subject to a cap or maximum rate. When the market index declines, the annuity protects against this market downturn. Interest credits are "locked-in," safeguarding those earnings from losses, so the annuitant will never earn less than zero even when faced with a bear market.

Are fixed annuities typically safe?

When planning for retirement income, fixed annuities can be a valuable component of a well-rounded retirement strategy to help retirees avoid the risk of outliving their savings. Fixed annuities are generally on the lower end of the risk spectrum and provide stability and protection from market volatility. The principal is protected from market downturns, and the interest rate is often locked in to help ensure stable growth. Because of their predictable and guaranteed nature, fixed annuities are often considered a safe and reliable option for lifetime income in retirement.

The benefits of fixed index annuities for guaranteed retirement income

Many FIAs offer a guaranteed income stream for life and can help to fill income gaps and ensure savings last, regardless of financial circumstances. FIAs can be an effective solution for supplementing income from Social Security, pensions, retirement accounts, and other personal savings. Like other types of annuities, FIAs are long-term insurance products designed to provide reliable retirement income. The timing of when to start receiving income from the annuity can be tailored based on projected retirement age, financial goals, and overall retirement preparedness.

For many, maintaining a standard of living in retirement and preparing for unexpected expenses, such as healthcare or long-term care, is a priority. FIAs offer flexibility to address changing needs, grow retirement savings, and generate additional income to support a more comfortable retirement.

Adding a FIA to a retirement income strategy

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 stay on track toward achieving retirement income goals, it is beneficial to consult with a financial professional for expert guidance. Together, you can assess future income needs, evaluate whether a FIA fits into the overall financial strategy, and explore ways to ensure retirement savings last throughout retirement.

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.

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