How Annuities Can Protect Your Retirement Assets from Volatility

After hitting record highs in January, the stock market officially entered correction territory on Thursday, February 8th. A correction is defined as a 10 percent drop from the market’s 52-week high. If the drop extends to 20 percent off the high, the market will enter bear territory. We haven’t seen a bear market since the extended financial crash that lasted from late 2007 to early 2009.

Couple worried over stock market loses

There’s no way to predict whether this is the beginning of a bear market or one of the many modest corrections that are a regular market occurrence. However, if you’re approaching retirement or already in retirement, the volatility of the past two weeks may have you rattled.

The good news is there are steps you can take to minimize your exposure to volatility and market risk. You can certainly change your strategy and allocation. However, you can also utilize tools like annuities to eliminate downside risk from some or all of your portfolio.

Annuities offer a variety of features that limit downside market exposure. Below are three popular strategies to consider. They could help you protect your retirement assets and enjoy a stable and comfortable retirement.

Single Premium Immediate Annuity

A single premium immediate annuity (SPIA) is an annuity contract that can be used to turn your assets into a guaranteed stream of lifetime income, much like a pension. You contribute a lump sum amount and choose a payment period. Many people choose payments for life, but you can also choose to have payments over a fixed number of years or to cover two lives.

The insurance company calculates a payment amount based on your contribution, the duration of the payment, and interest rate forecasts. If you choose a lifetime payment, they use your life expectancy to calculate the payment duration. Everything else being equal, the older you are, the higher your payment will be.

If you rely on your assets for retirement income, a SPIA could help you protect your income from market risk. When you use a SPIA, the payment amount is fixed and certain. Market fluctuation doesn’t impact your income in any way. Your payment will arrive on a regular basis no matter what the market does, just like a pension benefit.

Fixed Annuity

Perhaps you don’t need income right now but you still don’t want to risk losing money in a bear market. You might want to consider a deferred fixed annuity. These are annuity contracts in which you earn a fixed interest rate over a set period of time. There is no market exposure and most contracts have a guarantee that you’ll never get back less than your principal.

Fixed annuities also come with a guaranteed minimum interest rate (GMIR). At the end of your period, the insurance company will assign a new interest rate based on current economic factors. However, the rate will never be less than the GMIR, so you’ll always know the least amount of interest you could earn in the contract.

Also, fixed annuities are tax-deferred. That means you don’t pay taxes on your interest as long as the funds stay inside the contract. That tax-deferral could help your assets compound faster than they would in a taxable account.

Fixed Indexed Annuity

Finally, if you want exposure to market upside but don’t like the potential downside, you may want to think about how a fixed indexed annuity could work as part of your retirement strategy. A fixed indexed annuity is similar to a fixed annuity in that you earn interest each year.

In a fixed indexed annuity, though, your interest is based on the annual returns of a stock market index, like the S&P 500. If the market has a good year, you could earn a higher interest rate. If the market has a poor year, you may receive little or no interest.

However, you never lose value due to negative market performance. Like fixed annuities, indexed annuities have a GMIR, so you always know the least amount of interest you will earn in a given year. Fixed indexed annuities are also tax-deferred.

Ready to explore how annuities can help you avoid market volatility? Let’s talk about it. Contact us today at America’s Annuity. We can help you analyze your needs and goals and develop a strategy. Let’s connect soon and start the conversation.

2 Responses to How Annuities Can Protect Your Retirement Assets from Volatility

  1. sandra shepard March 20, 2018 at 5:53 pm #

    Hi Ryan Is my annuity safe if the market drops?

    • Ryan Eaglin April 5, 2018 at 10:14 am #

      Hello Sandra,

      Thank you for your excellent question!

      The short answer to your question is, YES!

      The annuity you have allows for market upside potential while completely protecting your principal, previously credited interest and locks in the value of your annuity every one of your contract anniversaries.

      The annuity you purchased has even further additional protection measures because you opted to include two annuity riders. Those protections are as follows.

      1.) Income for life guarantee. This is a guaranteed credited interest rate every year until you request to start taking guaranteed income for life distributions. Not only that but once you choose to activate this rider your annuity still earns interest based on index performance with all of the previously mentioned protections.

      2.) Guaranteed death benefit rollup. Your annuity has this rider which is a contractual guarantee that provides a minimum interest rate that is applied to your death benefit each and every year. The greater of two values would be payable to your named beneficiaries upon your passing. Either the account value linked to market performance or this minimum worse case rate of 5%.

      If you have further questions you may reach me at 602.396.4560

      Thank you for your business and it’s always a great pleasure to serve you!

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