Fixed index Annuity White Paper
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This document discusses the importance of personalized retirement income strategies, particularly the benefits of fixed index annuities (FIAs) which link interest accumulation to a stock market index while protecting the principal. FIAs can offer higher returns than traditional fixed annuities while providing options for inflation protection and liquidity through penalty-free withdrawals after a set period. Ultimately, it suggests contacting a financial professional for tailored advice on maximizing retirement savings.
Fixed index Annuity White Paper
- 2. 2 RETHINKINGRETIREMENTAre you making the most of your retirement savings? A common fear for pre-retirees and retirees is making ends meet in the years to come. Social Security and pensions aren’t always enough to cover ongoing living expenses. And it seems that everyone has a way to fix this. While this advisor or company suggests the benefits of one strategy, that other company swears by a completely different approach. With all these retirement “solutions” out there, it’s easy to get set up with a less-than-ideal-for-you plan. The best retirement income strategy for you and your family probably isn’t the one that works for your neighbor, your brother, or your boss. You have specific needs and goals for your retirement that will dictate which strategy will provide you with a comfortable, secure retirement. GETTHEMOSTOUTOFYOURRETIREMENTPLAN For those that are looking to protect their precious savings, but still want the potential to earn interest, a fixed index annuity may be a suitable solution. In return for a either a lump sum or regular deposits, these financial products pay out a specified amount of income for a set period of time - possibly even for the remainder of your life! In the past, annuities have often been dismissed because their returns can be quite low. But the fixed index annuity gives retirees the chance to earn more interest while keeping their capital safe. Keep reading to learn how it all works. INTERESTANDRETURNS A regular fixed annuity bases its growth and its eventual payout stream on a set rate of interest. Based on the contract’s interest rate, this means the account’s accumulation can be pretty slim. A fixed index annuity, on the other hand, provides additional benefits by linking interest accumulation to an underlying reference or index such as the S&P 500. This way, an FIA grows along with market gains, and has the potential to accumulate more than a traditional fixed annuity. But what about when the market performs poorly? FIAs are designed to move only one way - up. Their link to an index only reflects positive changes, so your principal is protected and growth is optimized. These hypothetical products were purchased on 1/1/1999 and the initial premium is $100,000. We are showing the annual point to point strategy (red line) with a 3% cap. At the end of a 1-year term, a new annual cap rate is declared for the next 1-year term. We also show the monthly point-to-point strategy (green line) with a 2.5% cap. The minimum guarantee (gray line) shows a market index scenario where no indexed interest was earned during the period shown. $100,000 $157,581 $150,134 $50K $75K $100K $125K $150K $175K 1999 2004 2009 2014 FIA with no indexed interest FIA with 5.0% cap S&P 500
- 3. 3 Furthermore, on each credit anniversary, the account value is locked in, insulating both principal and that year’s gains from potential market drops. Then, next year’s potential gains are calculated off this cumulative amount. This is called annual reset, where an FIA is always building off the high-water mark. ACCOUNTINGFORINFLATION In addition to receiving s steady stream of income during retirement, you may also need your funds to grow in order to keep up with inflation. Unlike a CD or fixed annuity, which offer a set rate of interest, fixed index annuities can help you combat inflation with an inflation protection option. These options can potentially increase your income stream by 1%, 2%, or even 5% over a set period of time. So, as the cost of goods and services increase, you’ll be able to afford them. ADDRESSINGTHELIQUIDITYISSUE One major objection that has surfaced against annuities is the issue of liquidity. Maybe you’ve caught yourself thinking, “If I deposit my life’s savings into this product, I won’t have any access to them!” This isn’t altogether true - your money is still yours to use when you need it. In most cases, 10% of a fixed annuity’s account value may be withdrawn each year without incurring a penalty. Premature withdrawals, called surrender charges, typically do include a penalty, which is generally a function of just how soon after deposit the withdrawal occurs. In addition, most fixed index annuities have a maximum of 10 years of surrender charges. After these 10 year, unlimited withdrawals can be made without incurring any penalty or charge. TAKINGTHENEXTSTEPS Planning for a steady and ongoing retirement income can seem overwhelming. In the face of volatile markets, dwindling Social Security, and overall financial insecurity, you might be worried that keeping your money safe and also allowing it to grow is impossible. A fixed index annuity might be your solution. If you’d like to learn more about FIAs and how they can aid in the comfort of your retirement, call us today at 866.406.9492 to be connected with a financial professional in your area. Note: All returns shown above are annualized (geometric) rates of return. The S&P index returns are not meant to proxy for index mutual funds returns, which would include dividends, expense ratios (the least costly have featured approximately 20 basis points per year), trading costs (another 30 basis points per year), tracking error and taxes; rather they are to reference what happened to the most popular index to which many fixed index annuities are linked through some formula. All guarantees are based on the claims-paying ability of the issuing insurance company. Withdrawals / surrenders have the effect of reducing the contract value and death benefit. Withdrawals/surrenders of taxable amounts are subject to ordinary income tax and if taken prior to age 59 ½ an additional 10% fed- eral penalty tax. Although the contract value may be affected by the performance of an index, it is not a security and the contract does not directly or indirectly participate in any stock or equity investment including but not limited to, any dividend payment attributable to any such stock or equity investment. There is no additional tax deferral benefit for annuities purchased in an IRA, or any other tax-qualified plan, since these plans are already afforded tax-deferred status. The other benefits and costs should be carefully considered before purchasing an annuity in a tax-qualified plan. The discussion of tax treatments in this material is an interpretation of current law and is not intended as tax advice. Consult your contract and your tax professional. Product features many vary by state. PERIOD S&PRETURN FIAAVG.RETURN RETURNRANGE 1997-2002 1993-2003 1999-2004 2000-2005 2001-2006 2002-2007 2003-2008 2004-2009 2005-2010 9.39% -0.42% -2.77% -3.08% 5.11% 13.37% 3.18% -1.05% -1.47% 9.19% 5.46% 4.69% 4.33% 4.36% 6.12% 6.05% 4.19% 3.89% 5% 13% 8% 28% 13% 23% 19% 27% 36% 7.80%-12.16% 3.00%-7.97% 3.00%-6.63% 0.85%-8.66% 1.91%-6.55% 3.00%-8.39% 3.00%-7.80% 2.25%-6.83% 2.33%-7.10%
- 4. WealthVest 2485 Manley Road, Suite A, Bozeman, MT, 59715, United States | 877.595.9325 1302092 RPTTH0312 FIXEDANNUITIES MAYPROVIDE: WealthVest 2485 Manley Road, Suite A, Bozeman, MT, 59715, United States, 877.595.9325 12081