As a rule, the closer you get to retirement age, the less risk you can afford to take on in your investment portfolio. With interest rates struggling to beat inflation, many investors are looking to annuities as a stronger alternative that is much safer than high-risk securities-based investments like stocks, bonds, and mutual funds. Annuities provide security and guaranteed income for investors, but it is important to remember that there are different kinds of annuity products. Each product is designed for different purposes and annuity contracts can contain a range of features that may make them more (or less) appropriate for investors in or near retirement. If you are wondering which annuities would be the safest choice for your retirement portfolio, the licensed retirement phase experts at Crash Proof Retirement® can educate you so you can make the best decision for your retirement future; however, Crash Proof Retirement® does not recommend variable annuities because they are technically high-risk securities that are not crash-proof.
The Foundation of Annuities
The definition of an annuity, according to Merriam-Webster, is a payment made at fixed interval. In the context of finances, it is an insurance policy or an investment that pays someone a fixed amount of money each year. What is missing from this general definition is the fact that annuities can be tailored to provide investment growth, systematic income, or both. Additional characteristics of annuities include tax favorability, principal protection, and – for one type – market risk. It has become increasingly difficult for retail investors to identify which annuities are exposed to market risk, which highlights the importance of meeting with trained retirement professionals who can help determine which annuities would be best suited for the investor and what features would be appropriate to meet their retirement income needs.
Different Types of Annuities
Unlike traditional securities or certificates of deposit offered at brokerages and banks, annuities are products of the financial life insurance industry and offer the benefits of guaranteed income. Investors can choose from several types of annuities, but not all annuities are appropriate for retirement planning due to the potential risk of losing principal. Here is a list of the different types of annuities:
- Fixed Annuities – grow at a fixed rate, crediting a guaranteed rate of interest that is generally higher than the interest gained from traditional Certificates of Deposit and guarantees a steady stream of income once annuitized.
- Fixed Index Annuities – work similarly to fixed annuities, but they credit interest by tracking the performance of an underlying stock market index like the S&P 500 without the downside risk of market volatility. Investors participate in the upside of market gains but experience no loss of principal when the market declines. This type of annuity also offers guaranteed income.
- Variable Annuities – are securities-based and are often presented as safe investments but are tied to the performance of mutual funds and do not guarantee the protection of an investor’s principal. With variable annuities, contract fees, investment fees and market risk end up eating away your principal, leaving your future retirement income in jeopardy. Variable annuities can be annuitized to activate a guaranteed stream of income; however, there is no guarantee that the value of the annuity will be greater than or equal to the principal investment. Some investors may have the option to guarantee their income stream based on a minimum of the principal investment with certain income rider benefits, but these are attached with additional hefty fees that further limit the investors ability to grow their investment.
- Immediate Annuities – turns a lump sum of cash into regular income payments over a specified period, usually beginning 1 to 12 months after it is issued.
Of course, each one of these financial products is far too complex to explain in just one sentence, but variable annuities are a danger to your retirement and put your savings at risk. If you want to include safe, principal protecting annuities in your retirement portfolio, it is encouraged that you conduct your own research and meet with licensed retirement phase experts to verify that you are receiving the best information possible before you decide.
How Can You Identify Safe Annuities for Retirement Planning?
If you are considering adding annuities to your portfolio, you may think that traditional financial advisors and regulatory agencies are good sources of information. Unfortunately, you cannot always trust what these sources are telling you. Retirement Media, Inc. has found that traditional advisors, regulators, and even some members of the media often blur the lines between annuities that are safe, guaranteed retirement investment vehicles, and risky variable annuities. Both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have described index annuities using blanket terms that lump fixed index annuities with variable annuities and other dangerous investment products. This has confused retirement phase investors and ultimately steered some away from investment vehicles that are designed to protect their assets. Traditional financial advisors can be an even worse source of information about annuities because securities-based products net those advisors high commissions and fees. They may not recommend principal-protecting annuities at all, and if they do, they may not explain the differences between each type of these complex products.
If you want to get the most accurate information about these kinds of investment vehicles, schedule a meeting to speak with one of the licensed retirement phase experts at Crash Proof Retirement®. Our team of consumer advocates can educate you about all types of safe retirement investments and provide you with all the information necessary to make an educated financial decision about your retirement future. The proprietary Crash Proof Retirement® System can help you identify investment vehicles that are not subject to market risk and fees, that will also protect your principal during a market crash. To find out more about how the Exclusive Crash Proof Retirement® System can protect you, call 1-800-722-9728 or visit crashproofretirement.com.