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Fixed Index Annuities: How to Get Stable Retirement Income With Low Risk

by | Oct 12, 2021

In the United States, the average person lives about 20 years after retirement, are you prepared financially? You might think that you’ll worry about retirement later, but now is the perfect time to start planning.

When you explore different retirement options, all the financial jargon and different choices out there might be confusing. We’re here to help. Read on to explore how to obtain stable retirement income with low risk today!

What Are Fixed Index Annuities?

Today, about 66.67% of seniors continue to work due to finances.  When you’re exploring retirement investment strategies, you might come across an option for principal protection to earn a nice rate of return. When you’re not directly invested then this might be right for you.

It’ll allow your assets to build while being tax-deferred. Annuities allow you to have guaranteed money for you and your spouse when you retire. Each year that money is deferred, it’ll grow.

How You Earn Interest on Fixed Index Annuities

There are 2 ways that you’ll earn interest. These include a participation rate or a cap.

A cap protects your principal from decreasing because of market volatility. That means that if the market falls, you won’t have a negative rate of return.

Participation rates work similarly to caps. Instead of caps, they increase principal by a percentage of the index’s performance.

Fixed Index Annuity vs Fixed Annuity

Through a fixed index annuity, you’ll enjoy a return that’s tied to the performance of an underlying index. Both fixed index annuity and fixed annuities protect your principal.

A fixed index annuity will give you more growth than a fixed annuity. It can also potentially offer you higher yields when it comes to government bonds or CDs.

Things To Consider

Fixed indexed annuities are a great retirement strategy for you if you’re looking for a higher rate of return. Keep in mind that there’s a long-term holding period.

There’s also an annual reset feature to help you earn more interest. No matter how the market fluctuates, you’ll have downside protection.

How To Get Started with Fixed Index Annuities?

If you’re looking to get started for retirement, you’ll want to reach out to your financial representative. Speak to them about your goals regarding how much you’d like to have for retirement, and they can find the right retirement strategy for you.

Once you buy the contract then you can either make multiple payments, transfer funds from a retirement plan, or make a lump sum deposit. After this, you’ll tell the annuity company how you want them to invest your money. Your options are to divide it across several indexes or into one.

Variable Annuity vs Fixed Index Annuity

Both fixed index and variable annuities are deferred annuities for you to increase your guaranteed income with rollup rates. There are also tax deferral benefits and guaranteed withdrawal rates for both.

While there are several similarities, there are some differences such as fixed index annuity premiums being added to the general account of the insurance company. It’s based on the performance of a linked market index or a fixed return.

Whereas variable annuities are direct investments of premiums into subaccounts. Fixed index annuities pay you interest using a formula that’s related to the performance of the index.

Many choose fixed index annuities since you can better control the upside and downside. The fixed index annuities will protect the principal as well. The good news is that fixed index annuities will also decrease the potential volatility of the contract value.

Why Choose Fixed Index Annuities? 

First, you can retire early without penalties. Since amounts from your 401K can be rolled over into an annuity policy, this means that you don’t have to worry about taxable income.

To do this, you’ll need to have what’s called a Substantially Equal Periodic Payment. This will allow you to take money out of a tax-deferred account before retirement.

Retirement Savings

Another great reason is to have retirement savings for your life. Many retirees say that they’re concerned they’ll outlive their investments.

When you choose fixed index annuities, you can choose an immediate annuity in many forms. There are also withdrawal benefits under certain annuities. Through this, you’ll receive a guaranteed monthly check for the rest of your life.

Probate-Free 

Probate can be expensive and time-consuming for your heirs. When you buy an annuity, you’ll protect your heirs from having to undergo probate. They’ll be paid directly as soon as the insurance company is told about your passing.

No Upfront Sales Charges

You’ll receive 100% of your premium without deductions to your account. Fees will only occur if you purchase riders or surrender the annuity early. This is because they don’t have upfront sales charges.

Other Withdrawal Options

Once your fixed index annuity isn’t subject to surrender penalties, you have options when it comes to withdrawal. You can either withdraw it in a lump sum or reinvest the money. If you choose a lump sum, then you’ll pay federal tax on these earnings in that year.

Exploring How to Obtain Retirement Income with Low Risk

After exploring this guide, you should have a better idea of why many choose fixed index annuities for retirement income. Are you ready to be prepared in advance for retirement?

Think of having guaranteed income during retirement and not having to worry about working. If this sounds like something that you’re after, then contact us today. We’ll help you come up with a plan for financial freedom in retirement.

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