Traditional past advice focused on utilizing a diversified portfolio of stocks and bonds. But with people living longer, retirement expenses increasing over time, and potential losses in your risk-based assets, you may be looking for something more.
While conventionally used products provide premium protection OR upside growth potential, a fixed index annuity (FIA) may have the right mix of both to complement your overall portfolio and help you reach your financial goals without directly investing in the stock market.
FIAs are an insurance product and a competitive alternative that can help limit exposure to market fluctuations through minimum guaranteed rates and premium protection, creating a foundation of conservative growth ... which is why they fall to the left on the financial risk spectrum chart below.
This chart is meant to serve as a general guide of where FIAs may fall in the financial services spectrum of common products. It is not a guarantee of performance individually or performance correlation or safety of the above listed vehicles.
Market volatility is a constant. Consumers with all of their retirement dollars exposed to market volatility have seen historic gains … but also historic downturns. As retirement nears, concern about how volatility will impact their assets may grow as that day approaches.
Consider the amount of gain needed to recover from a market loss similar to when the Dow Jones Industrial Average declined significantly on Black Monday in 1987. It would take almost a 30% positive return to “break even” within one year. Those on the cusp of retirement may not be able to afford that lack of stability.
FIAs provide accumulation value growth potential, without the risk of loss of premium due to market downturns. This means your premium dollars are protected from loss when the market drops below 0%, and could earn positive growth when it performs above 0%.
This conservative growth potential is shown on the chart below. In this hypothetical illustration, an annuity is linked to the S&P 500® index. It performed 19.53% in 1999, and a portion of the gain was credited to the annuity for that year. However, when the S&P 500 then performed -10.14% in 2000, 0% was credited to the annuity, protecting that annuity’s growth potential from market loss.
FIAs are able to protect premium and deliver conservative accumulation value growth potential by locking in earnings through “annual reset,” a unique feature which credits interest to an annuity’s value, based on how an underlying market index performs. Growth of an FIA is calculated based on the index it’s linked to. The annual reset feature means any interest credits are locked in and the gains cannot be lost due to market decreases.
The power of an FIA lies within its ability to balance both growth potential and premium protection to help smooth out the ups and downs of an overall portfolio. This power not only makes an FIA a welcome addition to many portfolios, but may help you be more targeted in achieving your financial goals.
In addition to premium protection and upside growth potential, many FIAs offer a nursing home confinement waiver1 for important “what-ifs” you may face in retirement. For example, what if you’re unexpectedly confined to a qualified nursing care center? On top of concerns about your health, you may possibly be concerned about the cost of care. An FIA may offer a nursing home confinement waiver for no cost that can provide a percentage of the accumulation value penalty-free for confinement in a qualified care center.
1 Not available in all states
The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.
38471R-25 | PRT 12-25
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