You’ve heard it before, and it’s true: Americans are concerned about outliving their savings.
According to a 2016 survey, nearly 75 percent of Americans over 40 are behind on their retirement savings.
What’s a solution? There are multiple ways seniors can store and build their nest egg. We consider fixed index annuities to be one of the most underutilized products for guaranteed interest return with no risk to the principal investment.
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How Do They Work?
Fixed index annuities grow at the greater of two outcomes ― the annual guaranteed minimum rate of return or the return from a specified stock market index. If the stock market index soars, the annuity pays a greater amount. If the market falls, the minimum rate of return is credited.
The policy owner is guaranteed to receive back at least all the principal investment in a fixed index annuity, minus any withdrawal charges. And since annuities are tax-deferred, those close to retirement age can sock away money with no annual contribution limit.
Is a Fixed Index Annuity Right for my Client?
Yes! Fixed index annuities were designed to compete with CDs, and they work well when allocated properly within a portfolio and realistic return expectations are understood. Seniors with higher return expectations and sophisticated knowledge of the stock market are ideal suitors for fixed index annuities.
Even those without knowledge of the stock market can find security in these annuities. Most seniors on fixed incomes can’t risk the instability of the stock market, but that doesn’t mean they can’t benefit.
Even those without knowledge of the stock market can find security in fixed index annuities.
The pitch is simple: Clients can benefit from a stock market climb while being protected from a stock fall.
Keep in mind, fixed index annuities may have varying interest caps, surrender charges for early withdrawal, spreads, and internal fees. As your client’s trusted advisor, you should fully disclose these figures up front, and be sure that your client fully understands the product they are purchasing. It’s equally as important to give your clients realistic expectations on their investment returns. Although the policy value may be affected by the performance of a specified index, the policy is not a security and does not directly or indirectly participate in that specified index.
Additionally, the performance of your client’s fixed index annuity, due to caps, spreads and other variables, may not have returns matching the returns of the specified index. Also, dividend payments attributable to that index are not included or credited to your client’s policy value.
It's important to give clients realistic expectations on their investment returns.
We wholly believe that fixed index annuities are sound investment options for seniors; however, they can be difficult to understand, so you should never mislead clients.
Stand Guard of Savings
Your mission is to resolve your clients’ fears of outliving their money. Those nearing their retirement years on a fixed income should be encouraged to avoid the danger of investing purely in markets. The longer a retirement lasts, the more likely an investor will have to weather a market downturn.
When you transition your aging clients’ investment approach from banking on risk to security, you can set them on the path to having guaranteed income for the rest of their lives. Help your clients shift from a philosophy of accumulation to preservation as they near retirement, and their nest egg will thank you for it.