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Safety Net For Retirement Funds


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Stock markets are off to a historically bad start for the year, and the S&P 500 has officially plunged into correction territory. With weaknesses in the commodity and emerging markets weighing on investors’ minds, it’s possible that stocks could continue to decline, even from today’s depressed prices.

This is a warning to investors to wake up to the idea that rising risks of a recession could send the stock market over a steep cliff.  But it can be hard to fight the urge to do something – anything – in the face of economic uncertainty.  Most investors are in a bearish mood and are unwilling to expose their savings further to traditional stock and bond market investment.

This is when Fixed Indexed Annuity (FIA) comes to prominence as a safer alternative to traditional financial investment.  The FIAs are ideal for people who are nearing retirement. FIAs, in essence, work like a social security or 401k plan. They provide reliable periodic payments all the while guaranteeing the principal amount.

The reason for their popularity lies with the fact that FIAs offer benefits of stocks, bonds, and 401k investment instruments.  Fixed Indexed Annuities have emerged as the most popular financial instrument for investors who are risk averse and want a guaranteed return on their investment.

The increasing demand for low risk investment instruments has fueled popularity of these FIAs. They are ideal for investors to secure their retirement savings and provide a guaranteed lifetime income that prove invaluable during their retirement phase.

FIAs offer very unique features to you, like:

  • A locked-in interest: An FIA’s indexed interest is locked in each and every year by a feature called annual reset and can never be lost due to a market downturn, on the contrary to your other investments. That means, any interest you earn is protected and therefore your principal too.
  • Timing: Whether or not you know exactly when you will retire, you cannot predict how the markets will be performing at that time. For example, many investments had a negative return multiple times over the last ten years. What if your wish to retire was at the end of those negative years? With an FIA, the accumulation value will never be lost due to market ups and downs.
  • Lifetime income: One of the most important features of an annuity that no other retirement planning vehicle can do is to provide a guaranteed lifetime income. An annuity is the only retirement vehicle that will guarantee that you will never be able to outlive your retirement savings.
  • GUARANTEES. Many people live with historically low interest rates to get FDIC protection for their certificates of deposit. When you learn more about the guarantees an annuity can give you, with much higher interest, you may well be more comfortable. See, the issuing company (an insurance company or an annuity company) guarantees your principal. In a deferred fixed index annuity, the company also guarantees the interest you earn.

Is this guarantee worthwhile? There are at least a couple of reasons you can rely on the guarantee of a company that issues an annuity.

First, your State’s Insurance Commissioner regulates the companies that offer annuities. This includes audits and other oversight. They also regulate how annuities are sold to you. The Insurance Commissioners do not want long-term annuities sold to people for whom they are not suitable. Rules help guarantee (or at least influence) that you do not make an unwise purchase in that case.

Second, Insurance Commissioners demand that an issuing company has enough reserves set aside to pay its obligations to you and other annuity and life insurance contract owners. That means if the company goes under in its general finances, your money is set aside and safe.

Third, if a company does go under, the tradition is that other companies come in and buy up the contracts that are still outstanding to contract owners. The benefits get paid one way or the other.So, with all these protections, the contractual guarantee of a life insurance or annuity company is very strong.

FIAs promise protection of principal over the tenure of the investment. The FIAs provide higher returns as the returns are linked to performance of a specified stock market index. Moreover, the returns on the FIAs are tax deferred. IRS does not tax the returns until you take them out from the FIA account.

If Safety is chief on your mind. The guarantees of regulated companies provide comfort. Index interest can provide more than other interest bearing investments; a lot more than Certificates of Deposit under current rates. They enjoy the protection from creditors. Most important, the deferred fixed index annuity offers growth without market risk, and lifelong income after the payment stream starts.

The deferred fixed index annuity is an important tool to guarantee we have a comfortable retirement; especially if we are fortunate to live a long time.

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Friday, February 5th, 2016 Wealth Preservation

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