• Chris Simpson

Why You Should Invest In Fixed Indexed Annuities

Updated: May 15, 2020

Why You Should Invest In Fixed Indexed Annuities

Since the roller-coaster that was the 2008 financial crisis, many people that lived through this disaster have started looking for a new approach to retirement. Again with the current economic situation surrounding the Covid-19 pandemic, they are being reminded as to why the different approach is needed.

They want a retirement tool that is safe, protects their money and still has the potential for growth. This way they can be out living their life without outliving their savings. This type of tool might sound too good to be true. Does something like this really exist?

Let’s take a look at what is becoming one of the most popular retirement tools: Fixed Indexed Annuities.

What is a Fixed Indexed Annuity?

A fixed indexed annuity is defined as “a tax-deferred, long-term savings option that provides principal protection in a down market and opportunity for growth.” Essentially, a tool that will protect your money from shrinking in a down market while still allowing it to grow when the market performs well.

The only catch is that your growth potential is usually capped. However, for the peace of mind of never losing your principal, this isn’t an issue for most.

The returns of fixed indexed annuities are based on an underlying index (think S&P 500 or the Dow Jones). If you’re not familiar, these indexes are just collections of stocks that track the growth of the market as a whole instead of investing in just 1 or 2 stocks.

Who uses them?

Fixed indexed annuities are perfect for people who want a guarantee that they won’t lose money and don’t mind locking up their money for a little bit.

These are usually people who are nearing retirement and don’t mind trading a bit of growth potential for lower risk/volatility.

3 elements of a fixed indexed annuity

1.) Protection of your principal investment - Even if the stock market drops 30% in one year, your principal (original amount invested) will never flinch.

2.) More opportunity for growth (than a fixed annuity) - You still have the potential to take part in the gains when the market performs well. The only tradeoff is that your gains are capped (usually somewhere around 3-15%)

3.) Growth is based on an index - While you’re not directly investing in the stock market, the growth of your account is based on the market’s performance.

How can they help you

Lifetime income - When you decide to, you can convert your account into a series of periodic income payments. This process is called annuitization.

Tax-deferred - You don’t need to pay taxes on any of your gains until you withdraw.

Protection - This is huge for those approaching retirement. Your earnings are credited to your account each year and can’t be affected by down years. This keeps your original deposit safe no matter what happens.

We hope that you found this article valuable! If you think fixed indexed annuities might be for you just book an appointment and we’d be happy to speak with you. If you’re interested in hearing more about how I can help you with your retirement plans, please click below to schedule an appointment.

Most annuities have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the annuity

(reallocating stocks, bonds, money market, mutual funds and other investments into Fixed Annuity products)

When you sell equities to reallocate your portfolio, there may be tax implications such as capital gains and losses.

The return and principal value of stocks and bonds fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.

Unlike CDs, diversification funds are neither Not FDIC insured * Not a deposit * May Lose Money * No Bank or any federal government agency guaranteed or insured. Although a money market fund attempts to maintain a stable $1 share price, you can lose money by investing in a fund.

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