the overview and buzz about retirement plans having FIAs fixed indexed annuities

The Buzz about Fixed Indexed Annuities

Consider an FIA for Your Retirement

When it comes to planning for retirement, it’s important to consider all of your options for generating income. One option that many retirees choose is a fixed indexed annuity. A fixed indexed annuity (FIA) is a type of annuity that offers a guaranteed minimum interest rate, along with the potential for higher returns based on the performance of an underlying index, such as the S&P 500. Here are some of the reasons why FIAs can be a good option for retirement planning:

Protection Against Market Losses

One of the biggest benefits of a fixed indexed annuity is that it offers protection against market losses. Unlike other investments, the principal amount invested in an FIA is not at risk of loss due to market downturns. This can provide peace of mind for retirees who are concerned about market volatility.

Guaranteed Minimum Interest Rate

In addition to protecting against market losses, FIAs also offer a guaranteed minimum interest rate. This means that even if the underlying index performs poorly, the annuity will still earn a minimum interest rate. This provides a stable source of income for retirees.

Tax-Deferred Growth

Another advantage of FIAs is that they offer tax-deferred growth. This means that the interest earned on the annuity is not taxed until it is withdrawn. For retirees who are in a higher tax bracket, this can be a significant advantage.

Flexible Payment Options

FIAs offer flexible payment options, allowing retirees to choose how they receive their payments. They can opt for a lump sum payment, periodic payments, or even lifetime payments. This allows retirees to tailor their annuity to their individual needs.

Estate Planning Benefits

Finally, FIAs offer estate planning benefits. In the event of the annuity owner’s death, the beneficiaries of the annuity can receive the remaining balance of the annuity without going through the probate process. This can be a significant advantage for retirees who are concerned about leaving assets to their heirs.

Fixed indexed annuities can be a good option for retirement planning. They offer protection against market losses, a guaranteed minimum interest rate, tax-deferred growth, flexible payment options, and estate planning benefits. It’s important to work with a trusted financial advisor to determine if an FIA is the right choice for your individual retirement goals.

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A Retirement Strategy Offering Both Savings and Income

In economic uncertainty, finding answers that provide both savings and an income during retirement becomes challenging. While you try to recover from a downturn, so are companies. And history speaks for itself: employee retirement programs are usually the first cut. This was seen after the Great Recession when corporations across the U.S. reduced and eliminated 401(k) matches. More recently, with the Covid-19 crisis, some companies have begun reducing retirement programs and other employee benefits to aid in recovering from the crisis.

Since retirement is up to the employee, you want something that will withstand the market fluctuations, lower risk, and provide a promised regular income: annuities. As an insurance product, annuities are either done with a single, lump sum payment or recurring premiums that will grow and provide retirement savings and income stream.

Overview of Annuity Types

Variable annuities often yield higher returns because they are directly tied to the consumer’s investment choices. However, they can be decrease in value when the market experiences a downturn. No guarantee is offered with interest or principal protection with these annuities.

Fixed annuities accrue interest off a fixed interest rate set at the beginning of the contract. These are written in stone for a set number of years, meaning they cannot decrease in value for that time. Thus, these annuities offer some protection guarantee, have low yields, and offer low risk.

Fixed indexed annuities are a middle ground of the other two annuities. Based on the performance of a specific index, they provide guaranteed principal protection. Risk is medium with this annuity and has a capped yield that becomes part of the annuity income stream.

Ways Annuities Lower Risk in Retirement

Lifetime income – After accumulation, income payments can be received as either a lump sum, an installment payment for a set number of years, or lifetime payments depending on the rider. This may come with a fee, but some riders have no fee associated.

Tax-deferred – As long as funds remain in the annuity, your savings will remain protected from the yearly taxation on interest. As a chance to earn interest on interest, principal, and on taxes deferred, you get ahead on retirement assets that is not typically available with other retirement accounts.

Principal protection – Protecting your hard-earned money will help reduce retirement risks you will face. With fixed and fixed indexed annuities, your principal investment is protected with the chance to grow and become a stable income stream for retirement.

Growth – Annuities offer a flexibility for growth that may be capped or have a participation rate. These are linked specifically to market indexes. A variable annuity has the potential for a high growth rate, but fixed or fixed indexed annuities allow for participation but less risk.

For more information on how annuities can reduce and eliminate risk in your retirement, please listen to The Retirement Risk Show episode, “The Crossroads of Longevity and Volatility: How Annuities Help.”

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