Fixed indexed annuities are insurance products that protect your hard-earned money and preserve your investment gains.
These concepts are being put to the test right now. The Stock Market recently experienced the fastest decline in value since the Great Depression. It’s been quite a financial punch to the gut for many of us. One thing that I’m sure we can agree on is that we cannot depend on Wall Street for protection. Neither for the money we invest, nor for the earnings we receive on our investments.
If there is any silver lining in the current state of affairs it is that many of us have had our eyes opened up to the significant downside/loss exposure Wall Street investments inherently possess. Many 401(k)s and IRAs built on Wall Street assets lost 20-30% or more in value over the course of the past two weeks. Hopefully, you weren’t as financially affected as others. Regardless, it’s a wake-up call for all of us.
You might find yourself asking:
Do I have enough cash in my reserves to ride this out?
What should I be doing to survive this financial crisis?
How can I come grow revenue when the economy bounces back?
It’s time to take a closer look at accounts that offer principal protection, preservation of capital, and opportunity for secure growth.
How to Use Fixed Indexed Annuities
Paradigm Life is a leader in the space of helping clients build whole life policies. These policies do a terrific job of offering wealth protection and growth. Plus, they enable you to utilize your capital to take advantage of financial opportunities. (Just read CEO Patrick Donohoe’s recent blog post for some thoughts on opportunity.)
But whole life policies are not the only tool we have in our arsenal.
Fixed indexed annuities are a complementary type of account that can allow you to protect and grow your wealth. They especially grow and protect the dollars you have in your 401(k) and IRA.
Fixed indexed annuities allow you to keep your gains each time you earn them—without risk of loss. They offer full principal protection and you get to keep your interest earnings regardless of what happens on Wall Street. Fixed indexed annuities can create retirement income, now or in the future, or they can safely grow your retirement assets for future use. They can be excellent at both jobs.
How fixed indexed annuities work
Fixed indexed annuities offer interest based on upward market swings. They help protect you against loss. They’re not actually invested in the market, but they offer options to link your interest earnings to market upswings. Therefore, you get the benefit of market performance without the loss exposure that typical market investments have.
For a great video illustrating how fixed indexed annuities work, and how they differ from variable annuities, check out this page from the Indexed Annuities Leadership Council.
Fixed indexed annuities have historically performed as well or better than investment-grade bond portfolios. They often have no fee drag to reduce your principal.
In today’s world, with bond yields lowering further and further, people are often incentivized to either chase yield in lower quality bonds or chase returns in the market. The problem is that both of these strategies increase the risk to their principal. Risking all of your principal is counterproductive for building wealth.
It’s time to get your life savings and your future retirement off the roller coaster.
How much does an annuity cost?
The cost of an annuity depends upon the type of annuity purchased, the payout period, and the amount of income the owner wishes to receive from their annuity, among other factors. Like many financial products, annuities are customizable based on your personal goals and income.
Annuities offer these potential benefits:
- Tax-deferred growth
- Guaranteed income not found with typical mutual funds
- No annual contribution limits
- Annuities allow you to catch up on retirement savings
- Annuities can guarantee you won’t outlive your money
- Some annuities offer death benefits to a beneficiary
Now Is the Best Time for an Annuity
Looking ahead, fixed indexed annuities are poised to continue to deliver principal protection while giving you an opportunity to earn conservative or better interest credits that you get to keep. Using them after a crash is a potentially very good time to take advantage of their attributes.
Fixed indexed annuities benefit from market downswings. After a downswing, the corresponding market index you could use to gain interest often has a number of “up years.” During this time, positive interest credits would be earned in an annuity. One of the key reasons to consider diversifying some of your portfolio into annuities is to lock in positive gains without the risk of loss during the next crash
You’re leaving your finances exposed to further loss if you believe “I need to regain what I lost before I do anything else.” You can safely and dependably grow your accounts back up with a fixed indexed annuity. You’ll not only recoup your losses, but increase gains much faster.
Why settle for regaining lost value when you can build new value?
The Power of Protection
The following graphs from American Equity Investment Life Insurance Company, one of the many top-rated mutual insurance companies we work with, outlines The Power of Protection offered by fixed indexed annuities.
Each contract year, the index’s ending value becomes the starting value for the next year. The index does not have to make up losses to earn interest. Fixed indexed annuities make this kind of protection possible.
When you grow your wealth without being exposed to loss, you don’t have to settle for regaining lost value. You can build new value from day one.
We have the experience and expertise at Paradigm Life to help you determine if rolling over a portion of your 401(k) or IRA into a fixed indexed annuity account would help strengthen your portfolio.
Where a Wealth Strategist Fits In
A key component to any financial strategy is understanding how it works. You need to know why you have it and what you hope to accomplish with it. A good financial planner or Wealth Strategist will take the time to educate you on your investment products.
At Paradigm Life, we offer this education for free.
When it comes to fixed indexed annuities, here’s what we can teach you:
1. We’ll help you learn how annuities work. We’ll show you how they protect your wealth and how they are positioned to earn interest that you get to keep, even in a market downturn.
2. We’ll show you how to consider what portion of your 401(k)/IRA you want to keep exposed to market volatility, based on your individual financial goals.
3. We’ll help you choose and set up your new account, customized for the benefits you value most.
4. We’ll take care of rolling over your 401(k)/IRA (you decide how much) into the new account. This can be a complicated process so we make it easy.
5. We’ll check in each year (or more often, if you like). We can reevaluate your options and make necessary shifts to help you succeed, if you decide, at any point, that your goals have changed.
Big name companies like the New York Times and CBS have purchased hundreds of millions of dollars of fixed indexed annuities for the benefit of their employees and retirees in the last few years. People across the country use these accounts to protect and build their wealth and it’s no mystery as to why.
Now is the time to revisit how accounts like annuities can complement any market based assets you have. They offer protection while you ride out this storm.
At Paradigm Life we can customize a policy to fit your financial situation. Our expert Wealth Strategists are available to answer your questions and show you customized illustrations, outlining an individual plan of action to help you achieve your goals. , no strings attached.
Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Guarantees do not apply to the performance of the index, which will fluctuate with market conditions. Annuities are designed to meet long-term needs of retirement income. Early withdrawal charges apply if money is withdrawn during the early withdrawal charge period. Before purchasing an annuity, read and understand the disclosure document for the early withdrawal charge schedule. The purchase of an annuity is an important financial decision. Talk to your financial professional to learn more about the risks and benefits of annuities.