Securing your life after retirement can be overwhelming. And with bond yields being at such low levels, you may be wondering: what’s the best solution for your retirement plan?
Although annuities have negative connotations, it just may be the saving grace of today’s retirement plan. According to economist Roger Ibbotson, “Bond returns in today’s historically low-interest-rate environment may be insufficient in meeting the anticipated retirement needs of U.S. Investors, potentially placing many at risk of outliving their retirement savings.”
A fixed indexed annuity refers to a guaranteed contract that’s issued by an insurance company. These fixed insurance products protect against loss and in addition offer tax-deferred fixed rates that are based on the current interest rate environment. Still, wondering if FIA’s are right for you? Let’s take a look at a few advantages of fixed indexed annuities.
One of the biggest benefits of FIAs is steady income for life. Most other investment plans or insurance products fail to ensure financial income, but with FIA, you never have to worry about outliving your savings.
FIAs provide lifetime income sources into a retirement plan. Having secure income throughout your retirements allows you to take more risk with the rest of your portfolio. This can add up to a higher total spending amount through the duration of your retirement.
Another benefit to FIAs? Even in the early years of your contract, they allow for a penalty-free withdrawal of up to 10%. This means that insurance products don’t entirely lack liquidity throughout the surrender charge period.
As Ibbotson reinstates, “I’ve always recognized you have to de-risk, and we see that bonds are not necessarily the way to go today because the yields are so low,” Ibbotson said. “It’s pretty hard to have a falling rate environment today when yields are below 3 percent on bonds.”
When considering the data on using FIAs in exchange of a bond replacement, we see encouraging information.
Ibbotson’s research also shows FIA can outperform bonds. This makes them a sturdy bond alternative. In regards to interest rates being at such low levels, a fixed indexed annuity has the potential to be a better means to pursue yields and provide return while also securing your principal balance.
Best of all, the interest gains earned inside the account will not be taxed until you take out your money. This makes this bond alternative a tax-free growth. Furthermore, when you are taxed upon withdrawal, this is usually during the retirement phase of your life, which means that you will be in a lower tax bracket.
Also keep in mind, if your FIA is acquired outside of a retirement account, (with the assumption it is annuitized) this form of income will be taxed pro-rata. This way, you’ll be able to effectively manage taxable income in retirement and grow your fortune in a tax-efficient manner.
In addition, FIAs enable investors to develop their principal up to a certain cap without the threat of market volatility.
With an interest-rate floor, investors will not receive anything less than their investment. This makes FIAs a safe, secure alternative for retirement that allows growth potential.
Annuity Architects Is Here to Help
We are here to help you have the retirement income and life you have always dreamed of. Even in a world of uncertainty, we promise to provide you with the resources, support, and everything else you need to feel stable. We work with you to understand your financial goals and create a plan that is right for you while teaching you about financial growth possibilities.
For over 40 years, we have been helping retirees live the life they have always dreamed about after they retire. We provide confidence, assurance, and strategies to ensure you never outlive your savings and can go forth for the rest of your life without any worries. What are you waiting for?