Assembling the optimal retirement plan is critical for today’s seniors given that their retirement years will likely be much longer than that of the parents. Most troubling, is that many of today’s retirees do not have the comfortable pension plans to offset the ever-increasing risk of life longevity (living longer than ones retirement savings can support).
Many individuals focus on traditional investments and investing styles, in the hopes of capitalizing on the same returns those investments had years ago. For others, though, finding the perfect plan may come in a new form, such as in the use of fixed index annuities. After learning what they are, it may be clear that this is the right step to take for your own retirement plan depending on your current exposure to life longevity and market risks.
What Are Fixed Indexed Annuities?
This is a type of Fixed Annuity that yields returns based on a defined index (most often the S&P500). They are similar to other annuities in that the terms and conditions of the annuity (as associated with its payout) depend specifically on the contract terms.
The unique benefit that sets Index Annuities apart from their annuity brethren is the fact that they offer their owners the ability to grow their accounts as their respective Index increases….all while being fully protected from any down years of the aforementioned index. Further, they contain a unique feature called “Annual Reset” which locks in increases in your account value at the end of the year while also locking this new higher amount as the new line for which the account cannot go down from.
Before thinking that this “heads you win, tails you don’t lose” offering is too good to be true, you must understand that insurance companies have to place maximum caps on your annual account increases during the up years to protect their solvency given that they are fully shouldering the risk of market downturns. Further, please know that these products are not designed to offer higher returns than the mutual funds and stocks should “potentially” make given long term “historical metrics”. Fixed index annuities are good for those who do not want to bet their retirement lifestyle on “potential” returns….they are better suited for those looking for a way to protect their hard earned retirement savings while having the potential to grow at a modest rate.
Education is key…so be sure to seek out an independent retirement income planner to see what options are available in your state.