If you are a senior or baby boomer, retirement is probably on your mind. You’ve saved the best way you know how, and if you are not at the decumulation stage of your life, then you’re at least looking to protect what you have saved. Safety, protection, and guarantees are all words that you associate with your retirement savings. You know that savings accounts and money market accounts provide the safety, the protection, and the guarantees you are looking for. The only problem is rates are too low. You have looked into certificates of deposit (CDs), but you’re presented with the same problem, rates are just too low! According to Bankrate.com, the national average for a 5 year jumbo CD is only 1.85%! If there was just an option for you to have the potential to earn higher rates than what certificates of deposits are offering, but still have the safety, protection, and guarantees; you’d be happy, right?
An alternative option that seniors and baby boomers are looking at is a fixed indexed annuity. A fixed indexed annuity (FIA), provides the safety, the protection, and the guarantees you are looking for. A unique feature with the fixed index annuity is the annual reset feature. Annual reset does just that, it resets annually. There are two main bullet points with annual reset. Any year that there is a gain, those gains are locked in. More importantly, you do not have to make up a loss to realize a gain. Let’s look at an example of how this would work.
Bob has one hundred thousand dollars he is placing in a fixed indexed annuity that has annual reset. Let’s say for example purposes the S&P 500 is at 1,000. Let’s also say that the annual point to point cap is 6% on this product. (Caps are associated with fixed indexed annuities, and limit the upside potential in return for protecting against the downside). The first year Bob is in this product, the S&P 500 drops 10%, and is now at 900. Bob received a 0% return that year. He did not make anything, but he did not lose anything either. His account value is still at one hundred thousand starting year two. Let’s say that starting year two, the S&P 500 goes up 10%, and is now at 990. At the end of the second year, Bob’s account value is not only at one hundred and six thousand, it’s locked in at that value now. Even though starting year three, the S&P 500 in this example is down from when Bob started, Bob is still making money, and locking it in thanks to the power of annual reset.
There are a lot of great fixed indexed annuities out there, and all have their unique fit for the right client, with the right goals. It’s important for you to not only do your due diligence, but to also contact your local retirement specialist to make sure you have the right FIA for you.