One of the biggest concerns of preretirees and retirees is income. This makes a lot of sense when you consider that all your savings essentially breaks down to an annual income you need to have in order to live comfortably during your retirement years. One of the options many investors explore when trying to plan their retirement income is a fixed indexed annuity.

Fixed indexed annuities, much like pensions plans of old, are contracts issued by insurance companies that allow your principal contribution to earn money based on the performance of a market index. It also ensures the interest credits you earn are locked in. Fixed indexed annuities can also be purchased with a guaranteed income benefit so that you get a minimum fixed, guaranteed* income throughout your retirement.


Understanding Indexes

A market index is a listing of assorted stocks or bonds that are representative of a specific segment of the market. They might represent a selected industry, emerging market or capitalization. While investors can’t actually invest in an index, there are investment vehicles, such as exchange trade funds, that are designed to mimic the performance of a chosen index. Popular indexes include the Dow Jones Industrial Average, which is a collection of 30 blue chip stocks, and the S&P 500, which follows 500 large companies.

Are you preparing for your retirement?

Here are three ways that investors can actively prepare for their retirement plans:
1. Failing to create a post-retirement budget to help determine future assets and income needs.
2. Projecting an overly short retirement.
3. Failing to account for inflation when determining potential future asset and income needs.

Three Facts about Fixed Indexed Annuities

A fixed indexed annuity isn’t the right product for every retiree, but it can make an enormous difference to some. Three facts to keep in mind when exploring the benefits of these annuities with a qualified financial professional include:

  1. They are not suitable for short-term savings goals. Fixed indexed annuities can expose you to surrender charges and tax consequences if you withdraw them too early.
  2. Fixed indexed annuities are a good choice for risk-averse savers. With a guaranteed interest rate and the option of a guaranteed* lifetime income—fixed indexed annuities offer savers a very low-risk product. But for risk takers, they may not be satisfying. Those with a higher risk tolerance may want to limit just a small portion of their portfolio to the guarantees offered by the annuity.
  3. Fixed annuities offer both immediate and deferred options. If you don’t need access to your money or annuity income immediately, you can choose a deferred annuity allowing your account a longer time horizon to grow.

*Guarantees are backed by the financial strength and claims paying ability of the issuing company.

This information is provided as general information and is not intended to be specific financial guidance. Before you make any decisions regarding your personal financial situation, you should consult a financial or tax professional to discuss your individual circumstances and objectives.