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Fixed index annuities and sequence of returns

June 3, 2024, 4:09:59 PM | Reading Time: 4 minutes

One of the concerns facing retirement income may be the sequence of returns. Market losses during retirement can potentially have a lasting impact on retirement funds. When it comes to sustaining retirement income, people often place importance on the average rate of return. However, what might be more impactful is not the average return but the order of returns.

Fixed index annuities and sequence of returns

What is sequence of return risk?

Also known as sequence risk, this refers to the risk of adverse market returns that can occur late in a person’s working years or the early years of retirement. Suppose a market downturn happens during this period. In that case, it can potentially have a large impact on retirement savings and an overall financial portfolio since there is less time to recover from those losses.

Let’s explore a hypothetical example of sequence of returns risk. In the two hypothetical examples provided, scenario A begins taking withdrawals in 1998, and scenario B begins taking withdrawals just two years later in 2000. Both have $500,000 at the time withdrawals begin. 21 years later, with just a difference of two years from when withdrawals started, scenario A still has over $100,000, while scenario B’s account is depleted by year 15. For those looking to help mitigate the risk of potentially outliving retirement savings, a fixed index annuity (FIA) might be an option. FIAs can offer a balance of both protection from market downturns and growth potential.

Sequence of return risk chart

Balance of protection from market downturns and growth potential

While one can’t predict what the market will do, a FIA can offer a balance of protection from market downturns and growth potential. Using FIAs, there is 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. In addition, FIAs can help with concerns about depleting funds because of some of the product’s specific features, such as:

Annual reset

An annual reset feature of many FIAs locks in interest credits, meaning index gains cannot be lost due to market decreases. The “annual” reset feature applies to credit terms that span one year. For terms longer than a year, the reset feature coincides with the length of the term. This feature helps both in growing and in protecting retirement nest eggs; not only will you not lose value from market downturns, but the new starting point for future growth calculations is the lower index value (assuming a market downturn.)

Financial stability

Fixed index annuities are designed to provide reliable lifetime income. Comparing the risk of FIAs to other popular retirement planning options,we see that it is on the lower end of the risk spectrum. Premiums cannot be lost due to a market downturn. Adding a fixed index annuity can serve to complement many retirement portfolios, including those on the higher side of the risk spectrum because they offer protection from market downturns and potential for growth.

For many, fixed index annuities may be an attractive addition to their retirement portfolio to help mitigate concerns regarding the sequence of returns risk or to help achieve retirement income goals. To find out more about FIAs, explore our in-depth learning materials to help better understand fixed index annuities and how they can help achieve a variety of goals.


Sammons® Financial Group, Inc.’s member companies, including Midland National® Life Insurance Company. Annuities and life insurance are issued by, and product guarantees are solely the responsibility of, Midland National Life Insurance Company.

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 additional optional benefit riders or strategy fees 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.

This information is provided for general reference purposes and should not be viewed as investment advice or as a recommendation for a specific allocation. Neither Midland National, nor any agents acting on its behalf should be viewed as providing legal, tax or investment advice. Always consult with and rely on a qualified advisor.

The “S&P 500®” (“the Index”) is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and has been licensed for use by Midland National® Life Insurance Company (“the Company”). S&P®, S&P 500®, US 500, The 500, iBoxx®, iTraxx® and CDX® are trademarks of S&P Global, Inc. or its affiliates (“S&P”); Dow Jones® is a registered trademark of Dow Jones.

Trademark Holdings LLC (“Dow Jones”). The Company’s Products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Indices.

Source for chart: https://www.macrotrends.net/2526/sp-500-historical-annual-returns



Not FDIC/NCUA Insured Not A Deposit Of A Bank Not Bank Guaranteed
May Lose Value Not Insured By Any Federal Government Agency

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