An annuity is a crucial part of a retirement portfolio. There are all types of annuities based on your needs, including ones that are popular for providing protected retirement income. You buy an annuity from an insurance company and get payouts for a set number of years or for your lifetime.
But certain annuities are designed to help you protect your assets by limiting or avoiding losses. So when the stock market drops, you can be more comfortable knowing you are protecting your assets.
“With the ramifications of the coronavirus, people, especially those near retirement, are more concerned about making sure they don’t lose what they’ve accumulated; that puts more focus on the asset protection side,” says Michael R. Harris, a senior educational advisor with the Alliance for Lifetime Income who holds CFP, CLU and CHFC designations. “‘If I can make a little money, that’s fine, as long as I don’t lose any.'”
Say you’re in your mid-50s. You know that in the future when you retire, you’ll get Social Security retirement benefits, maybe a small monthly pension, and you’ve built up a nice pot of savings. With an annuity, you can protect your savings—and earn something.
Annuities come in different flavors, with many different features, including varying levels of downside protection. Here’s what to look for if you’re seeking to shield your nest egg.
If You Don’t Need Sizzle, Just Downside Protection
With a fixed annuity, you put in money for a certain amount of time and get a set interest rate. You get the fixed interest rate for the term of the contract, the number of years you pick as the length of the annuity. The insurance company guarantees your full principal. That’s ensuring downside protection.
At the end of the term, say five years, you get your money back plus interest. You can end the contract, renew it, or buy a new annuity. “There’s not a lot of sizzle to buying a fixed annuity,” Harris says. That’s just fine for some folks. These are the most conservative types of annuities.
Is there a way to protect your money but get a better upside potential? That’s where indexed annuities come into play.