One of the first steps we take with our clients is to create an 'Income Flow Chart' showing Income Buckets for retirement. You will notice that Social Security and Pension income is what we call 'Guaranteed Income'. That is income you can count on! Our next goal is to take the other Income Buckets and create a 'Guaranteed Income Flow' for them, just like Social Security and Pensions. Only after you do that can you truly have the peace of mind knowing that your hard earned Retirement Money will last as long as you do. You have now completed the first Building Block on our Retirement Planning Pyramid.
One way to achieve that goal is through a Fixed Annuity. An annuity contract is beneficial to the individual investor in the sense that it legally binds the insurance company to provide a guaranteed periodic payment to the annuitant once the annuitant reaches retirement and requests commencement of payments.
She goes on to say, "in an effort to keep up with mutual funds, the insurance industry introduced yet another new kind of annuity in the mid-1990s- the Index Annuity. It was created to compete with very popular index funds, mutual funds that track a stock-market index. I have to admit I like the concept-for the right investors." She goes on to answer questions. 'You say there is a guarantee on the downside. What if the S&P 500 goes down 30 percent?' "Yes, there is a guarantee on the downside", "your money can only go up; it cannot go down. If you invest $20,000 in the annuity on March 15 and by the following March 15 the index has fallen by 30 percent, you will still end up with the $20,000 at the end of the year." 'Are index annuities better in bear or bull markets?' "In a down market, the company has to pay you something even if the indexes plummet. If the indexes go up one year, you can lock in gains for that year. Either way, you avoid taking the hits in the down years." 'How do I know if an index annuity is right for me?' "If you do not want to take risks but still want to play the stock market, a good index annuity may be right for you."
I would add, that if you would like to someday turn your investment into a 'guaranteed lifetime income stream' then a 'Fixed Index Annuity' is right for you.