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Investment Strategies: How to Use Fixed Index Annuities

by | Jun 3, 2021

If you’ve been thinking about your retirement income, you’ve come to the right place. Many people want to protect retirement savings and don’t want to risk the rises and falls of the market. Almost fifty percent of Americans are afraid they’ll run out of money during their retirement!

When considering the best options for your retirement, you might want safer choices. You should look into getting a fixed index annuity. Keep on reading to learn the strategies that work with this financial product.

What Is a Fixed Index Annuity?

Fixed index annuities get issued to you by insurance companies. It guarantees you a fixed interest rate over a definite time. That gives you income for the rest of your life.

You will know the amount of retirement income you will get each period. These financial products won’t increase or decrease with time.

With a fixed index annuity, you get a fixed interest rate and index performance. You pick the annuity you want and the guaranteed period. You choose as little as one year or as many as ten.

The amount never varies, so investors who want a safer strategy, like this option. Knowing there is no variability means they don’t have to prepare for changes in the market. For some, this relieves a lot of frustration heading toward retirement.

How the Strategy Works

You get a fixed index annuity from an insurance company, so you can think of it as a long-term savings contract. The strategy works because it lowers the risk of the investment.

You get a fixed rate of return for a specific number of years in the contract. The rate may reset each year, but it won’t go lower than what the company promises in the contract.

You will earn money based on how an index performs. Most index companies have participation rates. Those limit the returns you can get.

The participation rate is the percentage of retirement income you get. It’s what the annuity will pay. For example, if your contract sets the participation rate as 30% and your index grows by 10%, you get a 3% return.

Some contracts contain rate caps. That is the highest your return can go. If you have a rate cap of 5% and the index goes to 10%, you will only hit the 5% mark.

Sometimes the insurance company will offer a higher starting rate. That may only last the first year because they want to entice you to buy from them.

To protect your retirement savings, read the entire contract before you sign anything. You want to know how the strategy will affect your retirement income for the future.

Stable Retirement Income

You can put more money into a fixed index annuity than you can other retirement products. For those people getting a late start, this is often an attractive feature.

The rate of return on a fixed index annuity will never go below a set amount. With that in mind, you know how to protect your retirement savings. That gives you extra security even when the market takes a downward turn.

A fixed index annuity provides the most stable and reliable retirement income. You will know your money will be there when you need it. Investing in this type of retirement income is less volatile than other kinds of funds.

A fixed index annuity is a cheap option when looking at financial products. Most of the time, you won’t have to pay annual fees. You can get death benefit riders if you need to protect retirement savings for loved ones, but you may pay extra.

If you don’t want to get a death benefit, you can get a fixed index annuity in a joint account. That allows your spouse to keep the contract if you die, and the opposite is also true.

When choosing a lifetime retirement income, a fixed index annuity can meet many financial needs. You can choose a lifetime payout option and never worry about outliving your income.

Index Companies

Index companies track the market. They look at performance over time. They’re able to advise investors on where to put their money.

These companies help investors make more informed decisions on financial products. When you want to protect retirement savings, you need your money to stay as safe as possible.

Index companies might also market some research tools to investors and large organizations. They provide market strategies by tracking securities. Investors may use these companies to estimate what will happen in the future.

While index companies can cater to high-profile clients, smaller investors can use them. By looking at patterns in the market, an investor can decide where to earn the most money.

Tax Advantage

When you need to make the most of your retirement income, a tax advantage always helps. When you invest in a fixed index annuity, your tax will get deferred until a later time. That means you don’t pay taxes on the income you don’t make.

Your money will grow with interest that does have a tax burden. As long as you don’t use it, you won’t get taxed on it.

Securing Your Retirement Income

Buying a fixed index annuity is the safest strategy to protect retirement savings. Still, every investment strategy comes with some risks.

Do you know how much money you will need for the future? Knowing how to protect retirement savings can get confusing. With the right investment company, your money will work for you.

If you need a specific retirement income, you need a company that knows how investing works. With the right help, you can reach your retirement goals. If you’re ready to use your money to your advantage, contact us today to see how we can help!

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