During the interview process with a client, two overriding issues dominate any discussion concerning lifetime wealth building plans:
1. Will I have enough monthly income to live on in retirement?
2. Will it last long enough?
Concerns about these two issues are even more prevalent today after the two deep market crashes that occured over the last decade that have reduced the values of most people’s retirement accounts significantly. In addition to the deep declines in market based investments, the so called traditional “safe money” investments like savings accounts and certificates of deposit (CD’s) have seen historically low interest rate yields over the same time period.
Fixed/Indexed Tax-Deferred Annuities are a type of savings vehicle that falls between fully market based and fixed rate investments that should be a consideration for people concerned about protecting principal amounts and having enough savings for retirement. These type of annuities offer the benefit of participating in some of the growth of market indexes along with fixed rates of growth better than traditional “safe money” investments. In other words, the best of both worlds without down-side risk. Here is a chart that shows the performance of this type of annuity over the last (11) years as compared to the S & P 500 index:
As you can see from the chart above, because the indexed value of this annuity was allowed to lock in gains or even stay at zero on the down market years, the indexed contract value far outpaced the actual maket index over the same time period. This feature is called a yearly “reset” and is where the contract owner at each anniversary date of the original purchase, is allowed to select the growth mutipliers for the next year going forward. Selctions can be made for a fixed rate, an indexed rate from several of the popular market indexes or a combination of both. This feature is a key componet and why this type of insurance product should be a major consideration when looking to maximize tax-deferred growth on savings yet protect the principal amount from downside risk.
Another very popular feature of our fixed/indexed annuity product is the Life-Time Income Benefit rider that is automatically attached to all the annuity contracts. Each annuity has a contract value (Described in the chart above) or the value or amount that can be taken out as a lump sum at maturity. There is also an Income Benefit Value (IBV), which grows at a guaranteed rate of 7.5% compounded yearly. At anytime after the first anniversary date, the annuitant can choose to take a yearly or monthly income from the accumulated (IBV) for the rest of their life. At ages 50 to 59 they can take 4% yearly, at age 60 to 69 it would be 5% yearly and 70 and over it would be 6% yearly for the rest of their lives. It also is important to know that an annuitant has the flexibility of be being able to take a combination of both or to be able to take a lump sum with reduced life-time income benefit.
As you can see, the life-time income benefit feature answers the question of “will my savings last long enough in retirement” and is a big reason why many people consider buying annuities.
While I have given an example of our most popular Fixed/Indexed Annuity product, there are many other annuity products that have various surrender charge periods and features that will fit the needs of most people that may be looking for growth on savings yet protect it from downside risk.
