Plan for Tomorrow | How a fixed index annuity can create guaranteed retirement income
An older couple play tennis together.

How a fixed index annuity can create guaranteed retirement income

Sep 20, 2023, 7:45:30 PM | Reading Time: 5 minutes

With many people in this country living longer than previous generations, the time spent in retirement can potentially be longer than expected. Due to rising healthcare costs, inflation, and market volatility, retirees can be up against some tough challenges when making their retirement savings last. According to the 2023 EBRI Retirement Confidence Survey, only 26% of retirees reported feeling very confident that they will have enough money to last their entire lives. Retirement income planning is more critical than ever to help ensure you have what you need to meet your financial needs in the future. A fixed index annuity is one solution that can create guaranteed lifetime income that you can count on throughout your retirement.

How a fixed index annuity can create guaranteed retirement income

What is a fixed annuity?

When you purchase a fixed annuity, you pay a premium to an insurance company in exchange for a single income payment or a series of income payments once you retire. This insurance contract can offer additional financial security to your retirement income plan by providing a guaranteed income payment to help you pay for daily costs of living and unexpected expenses. A fixed annuity also guarantees a minimum credited interest rate, so you can grow your retirement savings for the future.

Suppose you are interested in these features but also want higher growth potential. In that case, a fixed index annuity (FIA) can be a great option to consider adding to your retirement income strategy. FIAs provide potential interest credits without risking the loss of premium due to market downturns without directly investing in the market. In addition to providing a steady income stream, FIAs can offer the opportunity to grow your retirement savings further, protection from market volatility, and can last through the end of your life.

How a fixed index annuity works

For retirees wanting to combat common retirement challenges while building and protecting their savings for the future, FIAs may be an excellent addition to their overall financial portfolio.

With an FIA, you typically allocate your premium among interest-crediting strategies. These can be a fixed strategy with a guaranteed rate of interest or index strategies that offer the potential to earn interest credit based on the growth of a specific stock market index without investing directly in the market.

If the market index goes up, you have the potential to grow your retirement savings. The growth potential of a market index is generally subject to a cap or maximum rate. However, when the market index goes down, you have premium protection from market downturns in your annuity. Your interest credits “lock in” and protect those earnings from market downturns. You can never earn less than zero even when faced with a bear market.

Creating guaranteed retirement income for life

Income from your retirement accounts, Social Security, pensions, and other personal savings may not have enough to last the rest of your life. Many FIAs provide a guaranteed income stream that can last as long as you do, helping to bring more financial freedom to your future. FIAs are similar to other types of annuities; as long-term insurance products, they are designed to help build your savings and provide income for retirement. You choose when to start receiving payments from your annuity based on your financial goals, estimated retirement age, and overall retirement readiness.

If your goals include maintaining your standard of living in retirement while being better prepared for unexpected expenses like a health event or extended nursing care, FIAs may be a good fit for you. With an additional source of retirement income, you can better adapt to your changing needs, help grow your nest egg for the future, and can be more financially fit for a potentially lengthy retirement.

Fixed index annuity

Since everyone’s personal goals and financial needs differ, an FIA may not be suitable for your overall retirement income plan. Explore the ins and outs of an annuity and determine whether it makes sense for you.

If you’re just starting to build your retirement income plan or are seeking ways to supplement your current strategy, now is a great time to meet with a financial professional. With their helpful guidance and expertise, you can build a retirement roadmap and determine the most suitable financial strategy for supporting your goals. Together you can explore your future income needs, whether an FIA makes sense as part of your overall retirement income plan, and help ensure your savings last throughout your entire retirement.

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

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 optional benefit riders or strategy fees or charges 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.