What are you going to do to ensure you have enough income when you retire? For many people, the answer to financial security can be found by purchasing an annuity from a financially sound and well established insurance company. An annuity can provide a stream of income over a period of time. There are many different types of annuity products available and those different products are offered by a large number of insurance companies. If you are looking for a guaranteed return on your safe money, as well as the opportunity for additional returns when the stock market does well, the most suitable type of annuity may be a fixed index annuity or Hybrid Annuity.
What is a fixed index annuity?
A fixed index annuity is like an ordinary deferred annuity in that it will provide you with a series of periodic payments at a future date. Just like an ordinary deferred annuity, there are two parts to a fixed index annuity.
- Accumulation phase - This is the period of time that starts when you purchase an annuity and the date when you begin to take distributions. During the accumulation period, the annuity provider invests the money you gave them to earn a return. The accumulation period varies in length depending upon the terms of the contract.
- Annuitization phase (payout) - This is the point immediately after the accumulation phase when you start to receive regular payments from your annuity. Depending upon how your annuity is set up, you may receive payments for a period such as the next 10 years or you may receive payments for the rest of your life. The amount you will receive each month or other specified period of time depends on a number of factors including the size of the annuity, the duration of the accumulation phase, and your life expectancy from the time you start receiving a payout.
A fixed index annuity is a hybrid annuity. It combines the best features from immediate income annuities (guaranteed income) with the best features of variable annuities (growth potential). Unlike an immediate income annuity that specifies the exact amount you will receive when you start the annuitization phase, a fixed index annuity provides a guaranteed minimum payout that can increase during the accumulation phase. It is linked to an index such as the S&P 500 and when the stock market (equities) does well in a given year, you earn a higher rate of interest based on the return of the index. Although there are a number of different indexes an annuity can be linked to, when it is linked to the S&P 500 or other stock market index, it is commonly referred to as an equity index annuity.
Key features of an equity index annuity
- You are guaranteed a minimum annual rate of return
- You can earn an additional rate of return when the stock market goes up
- You never lose principal if the stock market goes down (unlike a variable annuity)
- You can set it up so you will receive a stream of income for the rest of your life
In return for the guarantee that you will never lose any of your principal in a year when the stock market goes down, you do not get to fully participate in all of the gains in the stock market in an up year. For clients who do not want to risk losing any of their safe money, this protection against loss is well worth the sacrifice of some potential gains.
How much risk are you willing to assume?
When you buy a house, you can get a fixed-rate mortgage where you know exactly how much your principal and interest payment will be every month. If you select an adjustable mortgage, you have less certainty over what your monthly payment will be in the future. If interest rates do not change, you win. If they go up, you have to pay more each month and you lose your gamble.
As you get older and closer to retirement, or when you are retired, your risk tolerance will be less that when you were younger. You probably will want more certainty in your life and your financial goals will change from accumulating wealth to receiving steady income.
We can help you get the best hybrid annuity
At Advanced Capital Management, Inc., we take great personal pleasure in helping each and every one of our clients get the best hybrid annuity that will provide the safe and secure income that is needed to live a comfortable retirement. Our knowledgeable and experienced representatives will be happy to take all the time in the world to make sure you understand all aspects of any annuity you may consider purchasing.
Please click on the orange button to the right to get a no-obligation quote on an annuity that you may be considering. At Advanced Capital Management, money matters, but our clients matter more.