Fixed Index Annuities – Protect Your ‘Safe’ Money!
Against a background of more and more talk of another market correction, we thought it a good time to revisit the role that Fixed Index Annuities (FIAs) play in one’s overall retirement strategy.
Essentially you have your safe money-that is money that you want to protect and on which you never want to take a loss, and then you have ‘risk’ money-that is money that you are prepared to place at risk in return for promise of greater returns.
As always, there is risk vs. reward. The more risk you take, the more the potential reward.
FIAs play in the space of safe money. In return for allowing you a ‘share’ only in market growth, you are protected from any downside risk. In the event that the market goes down, you will go sideways (stay where you are) and then you would share again in market growth in subsequent years. It’s this ‘power of zero’ combined with the annual reset,that is where the value of the FIA can really be appreciated.
There is possibly a case to be made for using FIA’s and uncapped strategies for a portion of one’s risk money but, in our opinion, uncapped strategies will still only give you a share (albeit a much larger share) in market growth. If you want to participate fully in market growth and can afford to take a loss should there be a correction, then your place is probably to be invested directly in the stock market.
Once you have decided to protect your safe money using FIAs then there are still major decisions to be made. The choices are plentiful and you need the guidance of your advisor to choose the right one or combination for your particular circumstances and requirements. For instance, are you looking for growth, do you need income for life and, if so, when do you need this to ‘kick in’?
So get help and choose on the basis of making educated choices. It’s one thing to ensure that your safe money is protected; it’s another to ensure that it is working to the max for you as well.
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