Our expertise goes beyond personal and commercial policies. We advise clients on Fixed Index Annuities (FIAs) as a vehicle for supplemental income during retirement. The beauty of a Fixed Index Annuity is that it is not a direct investment, making it a lower-risk option by design. As such, the money held in your FIA will remain protected from market downturn losses. If you’re looking for solutions to help you enjoy your golden years without the fear of outliving your savings, talk to our experts about a Fixed Index Annuity.
Annuities The Lifetime Way
We are uniquely positioned to serve as more than just your one-stop-shop for insurance. We help our clients utilize Fixed Index Annuities (FIAs) as a lower-risk source of supplemental income for retirement. Because we understand the volatility of the stock market, we do not sell variable insurance products, but we provide the expertise to guide clients toward the right FIA package with the right carrier to help ensure they can retire comfortably.
What Are Fixed Index Annuities?
A Fixed Index Annuity is a lower-risk income stream to supplement your retirement funds. Unlike a variable annuity, the risk is with your insurance company, not you. If investment performance exceeds what the insurer needs, the difference is added to their company surplus. If performance is low, they bear the loss. Fixed Index Annuities also offer a minimum interest rate, between 1% and 3%.
How Do They Work?
Although your insurer bears the risk with an FIA, the insurance company determines the interest rates. Since these rates can change monthly, quarterly, semiannually, or annually, it’s imperative that you understand how and when the interest rate changes, before you buy. That’s where our insurance experts provide invaluable guidance.
Benefits of Fixed Index Annuities
They Are a Lower-Risk Option.
Unlike riskier options (like variable annuities), the money in your FIA account is protected from market downturns. So, even though your gains may be lower with an FIA, you won’t be at risk of losing money to a volatile market.
They Add a Financial Cushion to Retirement Savings
Many FIAs offer optional income riders, providing withdrawal benefits similar to immediate annuities. In essence, this provides a monthly check that should remain constant over the course of your lifetime.
They Help Build a Probate-Free Inheritance
A legal probate ensures the proper distribution to heirs. With a Fixed Index Annuity, you can spare your heirs this costly delay, and they can be paid directly and promptly as soon as the insurer has been notified about your passing.
They Can Be Annuitized For Tax Advantages
You can annuitize your FIA policy for tax advantages, while turning your annuity into a steady income stream. This process would entail exchanging the accumulated value of your FIA into an “immediate annuity.”
FIXED INDEX ANNUITIES FAQs
Is a Fixed Index Annuity a direct investment?
A Fixed Index Annuity is more nuanced than a direct investment. Think of it as an extra income stream. Your gains won’t be as high as potential gains with riskier investments, but it helps cushion your retirement funds without exposure to market volatility.
Does it all go to my insurer if I die before taking payments?
This is a common concern among most first-time FIA buyers. However, you can rest assured with an FIA, as you can choose a beneficiary to inherit the death benefit included in your annuity contract if you die before you start taking payments.
Will I lose it all in index downturns?
A Fixed Index Annuity is not a direct investment, making it a lower-risk option by design. As such, the money held in your FIA will remain protected from market downturn losses.
I already have my 401(k); why do I need a Fixed Index Annuity?
A Fixed Index Annuity isn’t synonymous with your 401(k). While your 401(k) is a retirement savings vehicle, it’s finite. FIAs serve as an extra source of retirement income. Although you may not need a Fixed Index Annuity, you can retire much more comfortably with that extra financial cushioning.
How does market loss protection work with FIAs?
In the wake of the last market crash, many investors have turned to annuities as a stock market safety net. With FIAs, your principle won’t suffer any losses during market downturns. To cover losses in the face of market downturns, the insurer must keep some of the gains during the years in which the market is up. So, during those “up” years, the insurance company credits you with only a portion of the overall market gains. The most common methods used for this process are annual fees and setting limits on how much you can gain. This process involves utilizing the “cap rate” method or the “participation rate” method.
What is a cap rate?
A cap rate or a cap is the highest annual interest rate your insurer credits to your annuity within an index term. It serves as the upper limit of how much interest you can earn. In most FIA designs, interest is credited to your annuity at the end of each term (usually 1 to 10 years), and your FIA offers multiple consecutive terms of 1 or 2 years. The insurer has the option to reset the cap rate at the beginning of each term. The reset rate is based on the current performance of the stock market and the performance of the annuity provider.
What is a participation rate?
A participation rate is the portion of the gains your insurer credits to your annuity during an index term. Like the cap rate, the insurer has the option to reset the participation rate at the beginning of each term. As is the case with cap rates, the reset rate is based on the current performance of the stock market and the performance of the annuity provider. It’s often recommended to pursue annuity contracts offering the highest cap or participation rates to achieve the greatest earning potential.
FIAs & YOUR RETIREMENT
Broaden Your Horizons
Regardless of which season of life you’re in, it’s never too early to start mapping out your future. When it comes to your retirement planning, don’t just save enough to survive – plan for the quality of life you deserve in your golden years. Fixed Index Annuities can help you make that happen. As independent agents, we have access to the top annuity providers nationwide, allowing us to shop the market for the best solutions to serve your lifestyle and broaden your future financial horizons.
Words from Our Experts
LIFETIME WEALTH MANAGEMENT, P.C. IS A SEC REGISTERED INVESTMENT ADVISORY FIRM (RIA)
LIFETIME WEALTH MANAGEMENT, P.C., LIFETIME TAX ADVISORS INC. AND LIFETIME INSURANCE SERVICES, INC. ARE LEGAL SEPARATE ENTITIES.