After a lifetime of hard work and looking forward to your golden years, you deserve the retirement you want. Unfortunately, with prices increasing and people living longer than ever, retirement savings don't go as far as they used to. This forces many people to rethink their investment strategies and can send you on an exhausting quest for the mythical and ever-elusive "perfect" investment. Though a single investment that provides principal protection, unfettered growth potential, and total liquidity is a fairy tale, a diversified portfolio that includes the right fixed-indexed annuity can empower you to achieve your "happily ever after" in retirement.
Here's what you should know about fixed-indexed retirement annuities, the benefits of including these annuities in your retirement portfolio, and how our Moorestown financial advisor at Leonard Financial Solutions can help you plan for a stable and more secure future.
Longevity and Financial Loss: Plot Twists That Can Rewrite Your Retirement Plans
Whether you dream of sailing around the world in a luxuriously appointed yacht, driving cross-country in a massive RV, or spending more time with the grandkids, outliving your savings or losing money in a market downturn can cast a dark shadow over your plans. Instead of traveling or creating special memories with loved ones, you could choose between accepting a lower standard of living or returning to the workforce.
Fortunately, you don't have to let longevity or financial loss rewrite your story. Working with a trusted financial advisor to carefully plan for your financial future can help you ward off twists and turns that could threaten to turn your happily ever after into a tragedy.
Understanding Annuities: A Popular Investment Option That Can Play an Essential Role in Shaping Your Financial Future in Retirement
Annuities are long-term contracts between individuals, known as annuitants and insurers, that let annuitants exchange premium payments for a steady income stream, usually in the future.
Annuity contracts have two phases: accumulation and annuitization. During the accumulation phase, you pay into the contract to build up its cash value, either with a single lump sum or periodically according to contract terms. Your investment grows over time based on interest rate or investment performance. Once you reach the annuitization—or payout—phase, the insurance company returns the money paid into the annuity, along with applicable investment income or gains, per the payout schedule outlined in the contract.
Different types of annuities offer various payout options. You can opt for a lump sum payout or arrange to receive regular payments during a defined timeframe or for the rest of your life.
How to Choose the Right Annuity for Your Retirement Portfolio
Numerous types of annuities exist to serve various needs, and payout options aren't the only ways these financial products can differ. Harnessing the power of an annuity can make you the hero of your retirement story by providing a guaranteed source of future income. However, with so many different annuities, determining the type that's "just right" for your retirement portfolio can be challenging. Let's explore some of the annuity options on the table.
Papa Bear's Bowl: Variable Annuities
Variable annuities let you put your premium payments toward investments you select—such as stocks, bonds, mutual funds, money markets, or a combination of financial instruments—and link the contract's value to the performance of the underlying investments. These annuities can have benefits and drawbacks for retirees. Though variable annuities allow you to enjoy potential market-driven returns when your investments perform well, they don't provide principal protection, leaving you vulnerable to substantial losses in down markets. The significant risk and the hefty management fees frequently accompanying variable annuities make this financial product "too hot" for many retirement investment portfolios.
Mama Bear's Bowl: Fixed Annuities
Unlike variable annuities, which can pay an interest rate that adds to the contract's value in years that underlying investments perform well and take a bite out of your principal during market downturns, fixed annuities provide a specific, guaranteed rate of interest on your contributions throughout the annuity contract. Though fixed annuities offer principal protection, shielding you from potentially devastating financial losses, the locked-in interest rate prevents you from taking advantage of performance-driven market gains.
Fixed annuities are sometimes called CD annuities since, like Certificates of Deposit, they protect your principal investment and provide a defined interest rate. However, they offer substantially less liquidity than CDs. Limited growth potential and liquidity make fixed annuities "too cold" an option for many retirement-focused investors.
Baby Bear's Bowl: Fixed Indexed Retirement Annuities
Not to be confused with the fixed annuities discussed above, fixed-indexed annuities are powerful retirement investment instruments offering a near-ideal combination of benefits. Like variable annuities, fixed-indexed annuities link the investment's growth to your selected stock market index's performance, but unlike variable annuities, fixed-indexed annuities provide principal protection. With a fixed indexed annuity, you can't lose the money you've invested, and your interest rate is never less than zero—even in a market downturn.
Fixed-indexed annuities let investors enjoy all the benefits of an up market without down market risk or volatility, an option that's "just right" for many retirement portfolios.
A Fixed Indexed Annuity Offers Enhanced Flexibility and Benefits
Compared to other annuity investments, fixed-indexed retirement annuities offer clear benefits for people planning for retirement, including:
- Purchasing and funding flexibility
- Downside protection
- Growth potential
- Lifetime income options
- No fees
- Surrender period (cash in contract early for a fee)
However, at Leonard Financial Solutions, we offer fixed-indexed annuity plans with exceptional benefits that exceed what the typical fixed-indexed annuity provides. For example, some fixed-indexed annuities limit the interest your principal can accrue when the underlying investments perform well, imposing artificial restrictions on the account's growth. Our fixed-indexed annuities allow unfettered growth through full participation in market gains. When the market index performs well, you'll enjoy the corresponding percentage of interest, and even during downturns, your interest rate remains at a minimum of zero.
Other unique benefits our fixed index annuity plans offer include:
- Limited liquidity lets you withdraw up to 10 percent of the annuity's value each year during the contract's accumulation period.
- Returns that typically outperform inflation.
- Chronic or terminal illness waiver that allows for penalty-free withdrawals or surrender if you are diagnosed with a terminal illness or require long-term care during the accumulation phase.
Fitting Fixed Indexed Annuities into Your Retirement Story
No investment fairy godmother can wave a magic wand and grant us financial stability in retirement or help us choose the annuity that's "just right." Thankfully, that doesn't have to mean navigating an unfamiliar financial path alone or taking a trial-and-error, Goldilocks-like approach to investing in your future. A reputable and trustworthy financial advisor and annuity provider from Leonard Financial Solutions can serve as a sage guide on your journey toward retirement security.
As financial advisors for individuals, we're committed to empowering you to achieve the financial objectives that enable you to live the retirement of your dreams. Because we're not contracted to a specific carrier, we can offer you what we feel are the best options from wide-ranging providers. Additionally, since we only work with well-rated companies with storied histories and extensive resources, you can feel even more confident in the security of your investment.
Building a Diversified and Balanced Retirement Portfolio
Fixed-indexed annuities can play a decisive role in your retirement security, but these investments are just one part of a robust investment portfolio. Our advisors can work with you to build a strong portfolio that offers the ideal balance of downside protection, growth potential, and liquidity.
Empowering Your Financial Happily Ever After
At Leonard Financial Solutions, helping clients achieve their "happily ever after" is what we do—and unlike some financial firms, you don't have to be an experienced investor to work with us. We're happy to start at square one, if necessary, and break down the retirement planning and investment processes for you step by step.