The recent health pandemic has had a massive impact around the globe. This includes more uncertainty surrounding retirement savings and income. In fact, according to a recent UBS survey, “three-quarters of investors around the world, and more than four in five in the United States, have concluded that life will never again be the same due to the pandemic.”
In addition, roughly 86% of American investors indicated that a sense of fear would likely continue throughout the foreseeable future. As you spend more of your time at home, a plethora of businesses in a wide range of industries have suffered the consequences. They will likely continue to do so going forward.
This same study concluded that a significant number of investors felt that the crisis has influenced the way that they think about money. With economic uncertainty likely remaining for the long term, there are many financial-related concerns that abound.
Some of the other highlights of the UBS study include:
- 77% of U.S. investors stating that the pandemic has hurt their retirement savings
- Roughly 80% of American respondents feeling that there will likely be further decline in the stock market
- The likelihood of millennials having to work for a longer period of time in the future in order to make up for the financial losses that they have suffered
What to Do to Get Your Retirement Savings and Income Plans Back on Track
While nobody can change what has happened in the past, there are at least some options for controlling what you do in the future with your savings and retirement income. For instance, a fixed indexed annuity (FIA) can provide you with the opportunity to attain a higher return. But these financial vehicles subject your principal to any added risk.
That’s because fixed indexed annuities based their return in large part on one or more underlying market indexes. These may include the S&P 500 and/or the Dow Jones Industrial Average (DJIA).
When the index performs well during a given contract year of the annuity, a positive return is credited to your account – usually up to a set limit, or cap. But in return for this limit on the upside growth, if the underlying index performs poorly in a contract year, your account will not lose value. Rather, it is still credited with a guaranteed minimum “floor.” This is usually in the range of 0% to 2%.
In addition to the possibility for higher return and protection of principal, the growth that takes place inside of a fixed indexed annuity is tax-deferred. This means that you have no tax due on the gain until the time of withdrawal. This, in turn, can allow your retirement savings and income to grow and compound exponentially – especially in comparison to a taxable investment account.
Growth of a Taxable versus Tax-Deferred Account
There are other benefits, too, that you may be able to include when you own a fixed indexed annuity, such as:
- Death Benefit – Many of today’s annuities come with a death benefit. These will oftentimes be included for no additional cost. In this case, if you have not yet received all of your initial contribution back before passing away, a named beneficiary will receive the rest in the form of a death benefit. (Note that annuity death benefit payouts are not income tax free like death benefits from a life insurance policy).
- Penalty-Free Withdrawal Waiver – Most annuities impose a surrender charge if you cancel the contract and/or if you withdraw more than a stated amount of money within a certain period of time. However, many FIAs will allow you to have penalty-free access to funds in certain situations. This may include you being diagnosed with a terminal or chronic illness and/or if you need to reside in a nursing home for at least a set period of time.
- Lifetime Income – One of the best features of a fixed indexed annuity is its ability to pay out an income stream. You can receive these payments either for a predetermined period of time or even for the remainder of your lifetime. This is the case, regardless of what is happening in the stock market. So, even if another market “correction” comes about, you can still count on a regular stream of income in retirement. This can oftentimes lead to a much more relaxed lifestyle.
Would a Fixed Indexed Annuity Fit into Your Portfolio?
Fixed indexed annuities can offer you many enticing benefits. They can also help to grow your retirement savings and income. But even so, these financial vehicles are not right for all investors and retirees. With that in mind, it is best to discuss your short and long-term financial objectives with a retirement income specialist before you make a commitment.
At Annuity Gator, our mission is to educate people about all things pertaining to annuities. These financial vehicles offer numerous benefits. But they also have many “moving parts.” So, it can help to walk through what they can and cannot do with an expert by your side.
Please feel free to reach out to us if you have any annuity questions, or if you would like to compare various types of annuities to determine whether or not they are a good fit for you. We can be reached directly at (888) 440-2468. Or you may email us by going here. We look forward to hearing from you.