People typically think of the average rate of returns when it comes to sustaining their retirement income. However, what might be more impactful is not the average return, but the order of returns.
Let’s compare two hypothetical situations. In both scenarios, $500,000 is saved for retirement. In the two hypothetical examples provided, scenario A begins taking withdrawals in 1998, and scenario B begins taking withdrawals just two years later in 2000. You would expect that both would have an equal depletion of their assets and run out of money two years apart, but because of sequence of returns, this is not the case. 21 years later, with just a difference of two years from when withdrawals started, scenario A still has over $100,000 while the account in scenario B is depleted by year 15.
To help mitigate the risk of potentially outliving retirement savings, a fixed index annuity (FIA) might be an option. FIAs can offer a balance of both protection from market downturns and growth potential.
With so many potential hurdles and uncertainty, some may want to find a retirement income planning product that helps balance the need for stability and provides growth potential. FIAs can offer both. A fixed index annuity has 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. Some key features of FIAs are:
An annual reset feature locks in interest credits annually, meaning gains cannot be lost due to market decreases. The “annual” reset feature applies to credit terms that span one year. For terms longer than a year, the reset feature coincides with the length of the term. This feature helps both in growing and in protecting retirement nest eggs; not only will they not lose value from market downturns, but the new starting point for future growth calculations is the lower index value (assuming a market decrease.)
Fixed index annuities are designed to provide reliable lifetime income. Comparing FIAs to other popular retirement planning options, we see that it is on the lower end of the risk spectrum. Premiums cannot be lost due to a market downturn. Adding a fixed index annuity can serve to complement many retirement portfolios, including those on the higher side of the risk spectrum because they offer protection from market downturns and potential for growth. Fixed index annuities are an attractive option for many looking to add stability to their retirement income plans. Not only can a FIA offer growth potential, but it can also provide protection from market downturns. If you think you may benefit from a fixed index annuity, explore our FIA information page.
Sammons® Financial Group, Inc.’s member companies, including North American Company for Life and Health Insurance®. Annuities and life insurance are issued by, and product guarantees are solely the responsibility of, North American Company for Life and Health Insurance.
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 additional optional benefit riders or strategy fees 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.
This information is provided for general reference purposes and should not be viewed as investment advice or as a recommendation for a specific allocation. Neither North American, nor any agents acting on its behalf should be viewed as providing legal, tax or investment advice. Always consult with and rely on your own qualified advisor.
This allocation provides the potential for interest to be credited based in part on the performance of the index without risk of loss of premium due to market fluctuations.
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