Retirement Planning in Today’s Economy

An interesting article titled Six feet under as a retirement plan? commented on a Wells Fargo Survey about the state of retirement planning in America. People are living well into their 80s and 90s and are worried about outliving their money. At the same time, finding the right investments in today’s economy is difficult. As you near retirement, your financial objectives move toward capital preservation and income. We are living with low interest rates and at a time when volatility is high in the stock market. So, are there any good alternatives to low paying CDs and risky stocks and mutual funds?

If your trusted investment advisor told you that there is a way to earn a substantially higher interest rate than you could with a CD, and that investment was just as safe as a CD, would you be interested? For older individuals who want to participate in a rising stock market, and do not want to lose anything when the market goes down, a fixed index annuity may be the ideal way to meet those financial goals.

Life insurance companies offer fixed index annuities that can outperform other so-called safe money investments, like a CD or money market fund. They make sense for individuals planning their retirement because during the accumulation period your investment and interest grows tax deferred. Furthermore, you will usually have a guaranteed interest rate that can increase substantially when the index (often the S&P 500) goes up in any given year.

Making this truly a safe money investment is an added feature that you will never be penalized for when the stock market goes down. You only participate in the gains of the market and not the losses. When you purchase a fixed index annuity, you are not purchasing any stocks. You are only giving yourself a chance to earn extra interest when the index ends up higher at the end of the investment year than where it began the investment year.

The insurance company that offers the fixed income annuity assumes all market risks. You are guaranteed a minimum interest rate on your investment. By law, the insurance company must keep the full amount of guaranteed interest in reserve. Your investment is backed by the deep pockets and financial strength of the insurance company.

As alternatives to low paying CDs and risky stocks and mutual funds, fixed index annuities provide another avenue, outside of an IRA or 401-K, to plan for retirement. By adding lifetime income riders to your fixed income annuity, you can guarantee a stream of income for your lifetime.

As with any investment, there are always trade-offs. With fixed index annuities that have lifetime income riders, you will not get the full benefit of rising stock prices in a bull market, but you will get the benefit of never losing money in a declining bear market. If you want safety, better than average interest rates, and a steady stream of income when you retire, you should consider a fixed income annuity with a lifetime income rider.