Now is not a great time to invest in bonds for long term retirement planning. The market conditions are not favorable because bond prices have been dropping as bond interest rates have been increasing. Many people turn to stocks when bond pricing is not favorable. Although stocks offer the potential for very high gains, they also carry quite a lot of risk. This leaves a lot of people wondering what their best option for retirement planning is. In a recent article for The Huffington Post, Carlos Dias Jr. offered some reasons “Why Retirees Should Consider Indexed Annuities.”
First of all, fixed indexed annuities offer principal protection. Using indexed annuity products as a financial retirement strategy is a good way of managing risk. Your principal is protected against market volatility and you can receive a guaranteed stream of income that will last for as long as you live. We’ve all heard the saying “slow and steady wins the race” and this certainly applies to the strategy of using indexed annuities to protect your money and create retirement income. It’s a wonder why more people don’t turn to annuities over bonds and stocks.
Some people stay away from annuities because they worry that they are sacrificing too much today for the uncertainty of the future. They worry that in giving up control of their money, they and their loved ones could lose out on future benefits. But annuities offer a lot of different guarantees that can return your principal and/or death benefits to your loved ones for a price. Other people fear that their annuity guarantees will not be paid out to them in the case that the insurance company goes out of business. This is very highly unlikely, but states offer guaranty payments just in case. Some other indexed annuity benefits making them a solid long-term investment include guaranteed income, the potential for increased earnings, and tax-deferred growth.
Another benefit of fixed indexed annuities is their interest crediting. This simplifies the investment management because you will receive a percentage of the gains in the stock market index associated with your annuity product. You don’t have to constantly manage your investments like you would have to do with direct stock market investing. You also don’t have to worry about market declines with a fixed indexed annuity. You are protected from market losses, but still have the potential to take advantage of a portion of any market gains.
Something to consider with indexed annuities is that they are long term investments. You have to commit to this investment for a minimum of 5 to 10 years, often longer to reap the full benefits. The longer the term, the better the participation rates and there are sometimes premium bonuses as well. If someone is looking for a short-term investment with high liquidity, then an indexed annuity would not be the right product. Although they have their disadvantages, fixed indexed annuities also have significant benefits that make them a good investment for longer term investors looking for market exposure and risk management. Indexed annuity products offer principal protection, tax-deferred growth potential and the option for guaranteed lifetime income.
Written by Rachel Summit