One of the most common fears for retirees and those planning for retirement is outliving their money. Not only is this a common fear—it’s a valid one. In fact, according to the National Institute on Retirement Security, Americans are at least $6.8 trillion short of what they need to have saved for a comfortable retirement.
For retirement, it’s important to ensure you have a guaranteed stream of income that you cannot outlive and will help you maintain the same quality of life. Fixed indexed annuities (FIAs) offer that security. Below is some expert advice to help you determine whether a fixed indexed annuity is right for you and your retirement plan.
Just like any other major purchasing decision, it’s important to do your homework before purchasing a fixed indexed annuity. Conduct research online to understand the different types of annuities, ask people who have purchased annuities, and, most importantly, consult a financial advisor and/or insurance agent. Don’t be afraid to ask questions to ensure a fixed indexed annuity will support your retirement goals.
Financial advisors and insurance agents selling annuities are required to have certain credentials. Ask about his or her qualifications, and ask to see a license.
When determining whether a fixed indexed annuity is right for you, be sure to understand how a fixed indexed annuity differs from other types of annuities. For example: a fixed indexed annuity is a type of annuity which offers a rate of return based on the market performance of an external index such as the S&P 500, but is guaranteed never to be less than zero. A variable annuity offers a rate of return that is also based on market performance, but can be less than zero depending on how you decide to have the insurance company invest your premiums.
Fixed indexed annuities have liquidity features that allow for penalty-free withdrawals on an annual basis, and for unexpected hardship withdrawals that’s are a result of permanent disability or nursing home care. However, just like a 401(k) or IRA, you can incur a penalty for an early withdrawal of money in excess of the specified penalty-free amount. Also, you can pay for an FIA in one lump sum or in payments, as well as receive payments in one lump sum or in payments. Read the contract language and know what your FIA entails before purchasing.
It’s important to know what type of retirement you plan on having and plan around that. Are you going to be a traveler? Will you be a homebody? Are you going to start that lifelong dream of traveling the country in a rock band? You need to know what you plan on doing, so you can plan for the associated costs—whether it’s a comfortable house or a comfortable RV.
Fixed indexed annuities are a low-risk retirement savings and income product that helps balance out your overall retirement portfolio, but they should not be your only retirement plan solution. It’s important that you have a variety of savings and income vehicles making up your retirement portfolio.
While a lot of people believe their expenses will decrease in retirement, some statistics show that expenses might actually increase, especially in the first year. This could be due to health care no longer being covered by an employer or increase in travel. Make a list of the ongoing expenses you will incur during retirement to determine how an FIA will help pay for those expenses.
You want your fixed indexed annuity to have time to increase. Mid-40s to mid-50s is a great time for many people to consider purchasing an FIA because ensuring guaranteed retirement savings and income becomes more important for those approaching retirement in the next 10-15 years.
Retirement savings are important and personal; don’t purchase with pressure. Take time to think about your decision and consider the pros and cons.
Fixed indexed annuities are a wonderful way to balance out a retirement portfolio because they are a low-risk insurance product that increase with index growth and are protected from market volatility. They also offer a guaranteed, steady stream of income to last throughout your retirement. Follow this advice to figure out if a fixed indexed annuity is right for you.
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