In a low interest rate environment, finding a safe money solution that will allow you to meet your retirement income needs can be difficult. As long as the Federal Reserve maintains an accommodative monetary policy, traditional income-producing investments like bonds and certificates of deposit will underperform.
While current annuity rates in a low interest rate environment can also lead to lower annuity returns, one type of available annuity that can perform well even with low interest rates is called a fixed index annuity or FIA. This investment alternative can boost your annual return when stocks are going up and interest rates are flat.
Low interest rates are very good for equities and the stock market because they lower business’ borrowing costs. Investors move their money to the stock market in search of better returns than they can get in safe, income-oriented investments.
As a smart investor, you should always examine both the positive and negative aspects of any investment. While fixed indexed annuities can be complicated, they have easy-to-understand basic features.
Fixed index annuity pros
- They provide a guaranteed minimum annual rate of return.
- They allow you to participate in a percentage of stock market gains.
- You are fully protected against loss in a declining stock market.
- Your money is safe and grows, tax-deferred, until withdrawal.
Fixed index annuity cons
- Your interest attributed to the underlying index (Usually the S&P 500) is calculated annually. You cannot lock in gains if the market starts to decline.
- A cap is placed on the maximum amount of interest you can earn in a given year.
A fixed index annuity may be the best annuity for retirement. Find out more about the potential returns and income you can earn by clicking on the orange button and getting a free quote.