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Choosing the right vehicle for your
retirement savings can be difficult. With so many choices, which
approach is right for you? One one hand, most people want safety—a
guarantee for their principal. On the other hand, many prefer the
potential of higher returns…but without the risks of an unstable
market. Fixed-rate investments cannot offer the potential of
market-like returns and stocks and mutual funds carry risks that
many people find unacceptable.
Are your choices
limited to a guarantee of principal with minimum interest or to the
potential of higher returns but with the risk to principal of market
loss?
Now you can have the
best of both worlds; guarantee of principal and the potential of
market-linked growth with no risk due to market downturns.
SAFETY AND GUARANTEE
OF PRINCIPAL
An Index Annuity provides you with all of the best features of a
traditional fixed annuity:
Guarantee Of Principal
Unlike
most securities or mutual funds where your account balance can fluctuate
due to market performance, premium deposited into an Index Annuity is
guaranteed to never go down due to market downturns. A contract holder
of an Index Annuity participates in market-related growth without
market-type loss.
Minimum Guaranteed CASH VALUE (MGCV)
In addition to the guarantee of your
principal, the index annuity contains a Minimum Guaranteed
Cash Value (MGCV) which grows independently of your
Accumulation Value at a specific interest rate. This value
provides a standard of comparison for your annuity values
throughout the life of the annuity. Thus, in a worst-case
scenario where the stock market made a downturn or achieved
no growth during the entire surrender period, you would be
guaranteed to receive your original amount of premium back
plus a minimum amount of interest.
ARE THERE RISKS WITH AN INDEX
ANNUITY?
Fixed or
index annuities are not for everyone. In exchange for a
guarantee of safety of principal, you give up some access to
your funds. So annuities are better for money that is set
aside for the future. Generally, withdrawals from annuities
are limited to 5% or 10% per year and carry steep penalties
for excess withdrawals. Annuities have a long lifespan—so
these restrictions can last for several years.
Here’s a
good rule of thumb: Make sure you have enough money set
aside for emergencies and opportunities before purchasing an
annuity. Discuss your financial future, your health and your
goals for any investment with a professional. I will always
review your financial picture before recommending any course
of action—including the purchase of an annuity.
There are
other annuities, variable annuities, that may be especially
unsuitable for retirees because these annuities are subject
to market risks, carry fees that can eat into returns, and
have long surrender periods with high surrender charges. I
do not recommend variable annuities nor do I offer them.
THE POWER OF TAX
DEFERRAL
All
annuity values accumulate on a tax-deferred basis until withdrawn.
Therefore, your money can grow faster because you earn interest on
dollars that would otherwise be paid as taxes. Your principal earns
interest and the interest compounds allowing you to accumulate more
money over a shorter period of time, thereby earning a greater return on
your investment.
POTENTIAL OF STOCK
MARKET LINKED GROWTH
While the Index Annuity concept offers many features of a traditional
fixed annuity, it has a rather unique feature that allows a potential of
stock market-linked growth without the potential of any market-type
loss.
In contrast to a
securities-type product or mutual fund where the investor bears the
market risk, the Index Annuity concept insulates the contract holder
from any risk of market downturns.
WHAT IS INDEXING?
Earnings on an Index
Annuity are based on stock market-like performance from certain indices.
But what is indexing?
Indexing is simply an
investment strategy that mirrors the performance of select securities,
such as the Standard & Poor's 500 Index'. The S&P 500' is a collection
of 500 select industry leaders and thus a benchmark for U.S. Stock
Market performance. An Index Annuity is linked to the performance of
this type of market index, without the risk of directly participating in
stock or equity investments. With indexing, we can participate in a
diversified passive investment strategy: a link to the market and its
potential gains without subjecting ourselves to the potential downfalls
of the market.
INDEX
ANNUITY VS. MUTUAL FUND/VARIABLE ANNUITY COMPARISON
The following is a comparison of how features are treated within an Equity Index
Annuity and most mutual funds or Variable Annuities (VAs) in the
marketplace today. Although both concepts are similar, there are some
unique features:
EXPECTATIONS FOR THE INDEX ANNUITY CONCEPT
The concept of an Index Annuity is a simple one: allow the potential for
market-linked gains without exposure to the market risk. Contract
holders enjoy the guarantees and safety of principal even while being
linked to market growth. However, they should not expect Index Annuities
to mirror the exact performance of any stock market indices.
Since an Index Annuity uses a passive investment strategy, it will not
mirror the exact return of the stock market index. The Index Annuity is
a powerful financial tool designed to meet your long-term retirement
needs. Get the best of both worlds with an Index Annuity today!
The information
provided is intended for informational purposes only and
does not necessarily reflect your particular situation.
This website does not nor does it intend to dispense legal,
tax or financial advice. |
