ANNUITIES
For retirees looking to preserve their nest egg while maintaining growth opportunities, fixed index annuities may be the right fit. Annual reset allows your gains to be locked in every year and any future decreases in the index value will not affect the interest that has already been earned.
Just take a look at the chart below to see what happens to $100,000 when invested directly in the S&P500 compared to investing in an annuity with a 50% participation rate.
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S&P 500 Annual point-to-point participation rate:
A crediting method that features an annual reset which places no limit on your upside potential.
For this example, we will assume a $100,000 initial premium with a 50% participation rate. Clients simply receive 50% of the S&P 500 upside with 100% principal protection during the years which experienced a market downturn.
Speak with your financial professional to determine if a fixed index annuity may be the right choice for your retirement needs and goals.
PROTECT FROM MARKET DECLINES WHILE DELIVERING COMPETITIVE RETURNS
The graph below is a visual of the table above. It demonstrates how fixed index annuities move with the S&P 500. In up years, the contract's account value grows, but in the down years, it maintains its value. Assets are protected and what goes up, won't come down.
LOSSES VS. NO LOSSES
Market exposure can be a good thing, especially in the years far away from retirement when you are working and building up your retirement nest egg.
This is when it's OK to be a little more aggressive with your investments. During this period called the accumulation phase, you are able to absorb the losses that result from your market exposure.
As you get close to retirement, you start the transition from the accumulation phase into the preservation phase. The preservation phase is one that requires you to start using that nest egg in order to survive during your retirement years. This is when market exposure becomes a bad thing.
For those with a 401k in place, the recommended timeframe for when they should be looking to move their 401k into an annuity is sometime during the 5 years leading up to retirement.
In the table below, the "Index Returns and Losses" is what $500,000 looks like when invested directly in the S&P500. The "Index Returns Without Losses" is what the value of the indexed annuity looks like over time.
This example assumes a 5% annual withdrawal of $25,000. Check out the Year End Value for each investment and it's pretty clear which one is the best choice for protecting the money you've saved for retirement.
SEQUENCE OF RETURN RISK
If you are taking withdrawals from your portfolio, the order or the sequence of investment returns can significantly impact your portfolio's overall value.
Consider the following hypothetical investment scenarios for Mr. Green and Mr. Brown:
Mr. Green and Mr. Brown both started with a $1 million investment portfolio at age 65. Both averaged a 6% annual return that grows to the same value after 25 years, but they experience their annual returns in an inverse order from each other.
Mr. Green begins taking withdrawals in an up market, giving him the optimal environment to maintain his portfolio value long-term. Unfortunately for Mr. Brown, he starts taking income in a down market and depletes his entire portfolio before reaching age 83.
The point of this table is to show that since we don't know how the market is going to act year to year, it's crucial to have your savings in a place where it's protected regardless of market fluctuations.
Disclaimers
All examples provided on this website are for illustrative purposes only. They do not guarantee future performance. Before making any decisions on investment products you should consult with a licensed financial advisor.
The above table for "The Power of Annual Reset" is based on actual rates for the same time period shown for the S&P 500® excluding dividends, from the end of 1999 to 2022. The 50% participation rate is presented for illustrative purposes only. The hypothetical fixed index annuity in this example uses the annual point-to-point index method based on changes in the S&P 500® to calculate the indexed credit every year. The model assumes a $100,000 initial premium purchased 12/29/1999. Rates are subject to change. Indexed interest credited only on amounts held to term. This example assumes no money is withdrawn. Index returns for a given year have been calculated by comparing the close from the last trade of the preceding year with the close from the first trade day of the given year. A fixed indexed annuity is an insurance contract. You are not buying shares of any stock or index. Data used from Yahoo! Finance. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company and do not apply to the performance of the index, which will fluctuate with market conditions. This is not a comprehensive overview of all the relevant features and benefits of fixed index annuities. Be sure to review all of the material details about any product and discuss the suitability of the product with one of our financial professionals.
Annuity contracts typically require money to be left in the annuity for a specified period of time, usually referred to as the “surrender charge period”. If you fully surrender your annuity contract at any time, guaranteed payments provided for in the contract and any rider in force will cease, and you will receive your contract’s cash surrender value. The annual reset allows for any interest credited on each contract anniversary to be “locked-in” and it cannot be taken away due to market decreases. The interest credited is added to the accumulation value of your contract, which then becomes the guaranteed accumulation “floor” that will be included in the calculation of the interest that is credited going forward, subject to any withdrawals and applicable rider fees. The annual reset sets the index starting point each year at the contract anniversary. This reset feature is beneficial when the index experiences a severe downturn during any given year because not only do you not lose accumulation value from the downturn, but the new starting point for future growth calculations is on the lower index value. Although an external index may affect your interest credited, the contract does not directly participate in any equity investments. You are not buying shares of an index. The index value does not include the dividends paid on the equity investments underlying any equity index. These dividends are not reflected in the interest credited to your contract. Early withdrawal charges will apply if money is withdrawn during the early withdrawal charge period. The S&P 500® is a trademark of Standard & Poor’s Financial Services, LLC and its affiliates. Thornhill Insurance Agency is not affiliated with, nor does it have direct business relationship with Standard & Poor’s Financial Services, LLC.
Not FDIC Insured | May lose value | No bank or credit union guarantees | Not a deposit | Not insured by any federal government agency or NCUA/NCUSIF.