Couvillier Advisors

Retirement Income Protection

Retirement isn't what it used to be. There is less certainty than ever before. Fewer businesses are offering 401(K) and pension plans. Due to advances in medicine, people are also living longer and many are outliving their financial resources. If you are in retirement or nearing retirement, do you have time to recover your retirement if it's lost in the next recession? If you don't want to risk losing part of your retirement savings in equity based products with the risk of market losses, a fixed index annuity is a great alternative. It is a secure investment with the potential to earn great returns and can guarantee income for your retirement.

Retirement Income Protection

What is a Fixed Index Annuity?

A Fixed Index Annuity is retirement income protection, a way to protect your retirement savings from market losses. Annuities are a great alternative to equity-based investments such as 401Ks, stocks, and mutual funds. They allow you to still participate in the stock market, while protecting your principle. Annuities are tax deferred, meaning the money will accumulate without you having to pay tax on the gains until the money is withdrawn in the future. Tax deferral can be a huge benefit. Annuities also avoid the costs & delays of probate, giving your loved ones access to the funds quickly when you pass away, if you haven't used all of the cash value during retirement.

How Does a Fixed Index Annuity Work?

A fixed index annuity provides steady payments that are based on the performance of an underlying index. Fixed index annuities offer some of the upside of investing in index funds by tracking certain indexes, such as the S&P 500, the Nasdaq, the Russell 2000 or the Hang Seng. Unlike index funds, fixed index annuities are generally protected against loss of principal. This means you won’t lose any of the money you put into a fixed index annuity. This protection against losses, however, comes at a cost. You won’t receive the exact return of the market index. Instead, the annuity will limit both your potential gains and your losses.

Annuity Terms You Should Know

Loss Floor - A fixed index annuity limits your losses, even in a bad year for the market. It’s common for the floor to be 0%, so worst case you just break even in a downturn.

Minimum Return - A fixed index annuity might pay a small guaranteed interest rate or return, so no matter how the market index performs you earn at least some money. For example, an annuity may guarantee a minimum return of 0.25%. This means even if the index goes down for the year, you'll still earn 0.25% interest for that year.

Adjusted Value - Your fixed index annuity could use an adjusted value method to protect against losses. This means the annuity company would periodically adjust the minimum value of your contract based on the returns you’ve already earned. This locks in your gains so you can no longer fall below this threshold.

Return Cap - Your annuity company could also set a limit to your gains. For example, it might say that no matter how high the index return, the most your balance could grow in a good year is 5%.

Participation Rate - Your annuity company may choose to limit your gains through a participation rate. The participation rate is the percentage of your money that’s actually eligible to earn market returns. For example, if the participation rate is 50%, you would receive half of the index’s returns. If the market index return is 8%, your balance would only grow by 4%.

Spread/margin/asset fee - Your annuity company could also deduct a spread/margin/asset fee from your return each year. If their fee is 3% and your return is 8%, your money would only grow by 5%.