We all learn early in our careers the three rules to secure a solid retirement savings.
- Start Saving Early (NOW)
- Make Consistent Contributions
- Diversify the Allocations
The first one relates to the duration of saving and the power of compounding interest – the longer you save, the more you should have at retirement and the earlier you save, the longer your money can earn interest and interest on the interest earned (aka Compounding Interest).
The second rule speaks to consistent and regular savings. If you ‘re consistent with your savings, your retirement fund continues to grow. If you’re sporadic, there will be periods of no contributions. In addition, when investing in securities sold in shares, if you are consistent with savings, you take advantage of what is called Dollar Cost Averaging1, which means you buy more shares of an investment when the price is lower (i.e. when the market or that investment is down) and you buy less when the price is higher, thereby lowering your average cost if the market is fluctuating.
The third rule is about spreading your savings across a number of investment types so that you don’t “have all of your eggs in one basket.” This is called Diversification2. If you are younger and just starting out your savings, you may have time to be more aggressive as there is more time to recover from any potential risks involved with more aggressive investment strategies3, but if you are older and closer to retirement, you may want to be more conservative with your asset mix so that you don’t risk your retirement funds should there be a big decline in the market, from which you wouldn’t have time to recover.
Fixed Indexed Annuities as Part of a Diversification Strategy
Historically, and as we’ve experienced recently, equities may be subject to more drastic ups and downs than more conservative financial products. Fixed Indexed Annuities provide a remedy for those not interested in watching their retirement funds go up and down with the market.
Fixed Indexed Annuities have the protection of a 0% floor so that they never lose a penny due to downturns in the market. The “floor” ensures that during crediting periods where the index is negative, no less that 0% interest is credited to the index strategy.4
Fixed Indexed Annuities credit interest based, in part, on the change of a market index. This may provide potential for better interest crediting than a traditional fixed annuity or other financial products that credit fixed interest based on current interest rates. Indexed annuities also typically have caps or other limiting mechanisms that limit the amount of interest you can earn.
Some Fixed Indexed Annuities also have optional features, called riders, that can provide guaranteed5 income for life while still providing access to the values of the annuity, or can provide enhanced access to account values, or even provide an enhanced death benefit.6
Fixed Indexed Annuities protect those later in life and closer to retirement from big swings in the market, thereby providing protection from losing significant savings when getting close to retirement.
Fixed Indexed Annuities typically don’t have sales charges or internal expenses. Some riders you may choose would have fees associated with them..
In short, Fixed Indexed Annuities are a prudent retirement vehicle if you are looking for interest crediting potential based, in part, on a market index, but also want a product that will never lose a penny due to downturns in the market. They can provide protection of your retirement funds during volatile and uncertain times and are designed to provide income for life.
No bank or credit union guarantee | Not a deposit | Not FDIC/NCUA insured | May lose value | Not insured by any federal or state government agency
Investing involves risk, including the potential for loss of principal. Past performance does not guarantee future performance. Bill Aikman is a Registered Representative of Equity Services, Inc. (ESI), Member FINRA/SIPC, One National Life Drive, Montpelier, VT 05604. (800) 344-7437. ESI is a Broker/Dealer and Registered Investment Adviser affiliate of National Life Insurance Company.
Indexed annuities have withdrawal charges that are assessed during the early years of the contract if the annuity is surrendered. In addition, withdrawals prior to age 59 ½ may be subject to a 10% Federal Tax Penalty. Indexed annuities do not directly participate in any stock or equity investments. This is not a solicitation of any specific annuity contract.
1 Periodic investment plans do not assure a profit and do not protect against loss in declining markets. Dollar cost averaging plans involve continuous investment in securities regardless of fluctuating price levels of such securities. Investors should consider their financial ability to continue purchases through periods of low price levels.
2 Diversification does not assure a profit or guarantee against loss.
3 No amount of time in the market can guarantee a profit or guarantee against a loss.
4 Protection of premiums paid and interest earned assumes no withdrawals are made during the withdrawal charge period. Rider charges continue to be deducted regardless of whether interest is credited.
5 Guarantees are dependent on the claims paying ability of the issuing insurance company.
6 Riders may be optional, may be available at additional cost, and may not be available in all states or on all products.
TC115467(0720)3
