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You Can’t Make Money Without Taking Risks…Or Can You?

Article previously published in The Ponte Vedra Recorder, Ponte Vedra Beach, FL

In the past, annuities were viewed simply as an alternative to holding a bank CD; they paid a bit more interest and taxes were deferred until the funds were withdrawn. Today, fixed indexed annuities with lifetime income riders offer the opportunity to grow funds through market-linked crediting mechanisms and create a lifetime income in retirement without the market risk. That is a powerful combination. I strongly believe in the use of fixed indexed annuities as part of a diversified portfolio that can benefit anyone saving for or living in retirement. Let’s look at several key provisions of fixed indexed annuities:

1) A fixed indexed annuity, or FIA as it is commonly called, credits interest based on the performance of a market index so the owner benefits when the market goes up, subject to caps on the rate of increase set by the insurance company. However, since the annuity is not invested in the market, the company can guarantee that the annuity’s value will not go down if the market decreases.* Also, each state has a state guarantee fund, which provides guarantees on a state-specific basis.

2) FIAs include a provision called an annual reset. This means that the annuity resets each year with the market so if the market drops in a year, the annuity restarts its interest accumulation process at the new low which benefits the annuity owner.

3) The owner of a FIA can change the interest crediting method each year in an attempt to maximize interest credits.

4) Fixed indexed annuities typically provide the ability to withdraw up to 10% of either the initial or current value, depending on the insurance company, any or every year without penalty. Also, many such annuities have penalty-free withdrawal provisions in the event of sickness, terminal illness or unemployment.

5) Finally, most FIAs have optional lifetime income riders available whereby annual or monthly payments can be started at a future point determined by the annuity’s owner. Until that time, the value on which the payments will be calculated grows in some enhanced fashion (differs by company and product). Some products even provide the ability to increase payments once started to account for inflation.

I’ve written previously about the various types of annuities and how all annuities are not created equal. In fact, there are many different types of annuities including: immediate, variable, fixed and fixed indexed. There are also many different insurance companies offering annuities. Just as all annuities are not created equal, same goes with the insurance companies offering the annuities. I work with a number of leading insurance companies offering fixed indexed annuities. If you would like to better understand the different types of annuities, and how adding an FIA to your financial plan might benefit you, please do not hesitate to contact us.

Frederic “Ric” Schilling is a Florida native, born in Jacksonville, Fl. Ric is President of Senior Guardians of America, a local North Florida firm specializing in tax reduction, long term illness planning, asset protection, probate avoidance and life income planning. Ric is a National Speaker and Advocate on Senior Issues and has been featured by the Florida Times Union and WJXT, TV-4 in Jacksonville as an authority on Estate Planning and Retirement Issues. Senior Guardians has an A+ rating with the Better Business Bureau and is a member in excellent standing with the National Ethics Association.

This article is not intended to give tax or legal advice. Securities offered through Center Street Securities, Inc.(CSS), a registered Broker-Dealer and Member of FINRA & SIPC. Senior Guardians is independent of CSS. *Annuities backed by claims paying ability of the insurer issuing the annuity.