Summer Saving Strategies: Protect Your Savings

Jul 24, 2019

By Dan Schulte, Vice President and Manager, Annuities and Insurance

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Does the recent stock market volatility have you a bit jittery?  If so, maybe the purchase of a deferred annuity could help by providing downside protections for accumulation, income, and/or death benefit purposes.

Various type of deferred annuities exists, but basic structures include:

Fixed interest annuities offer a guaranteed rate of return for a certain number of years.  Fixed annuities are contracts issued by life insurance companies to individuals looking for guaranteed rates of return for a certain number of years without any risk to principal.

Fixed indexed annuities have similar features as a fixed interest annuity, except the annual growth is bench-marked to a stock market index (e.g., Nasdaq, NYSE, S&P500) rather than a fixed rate of interest. An index annuity’s growth is typically subject to rate floors and caps, meaning it will not exceed or fall below the specified return levels even if the underlying stock indices fluctuate outside of those set parameters.

Variable annuities premiums are invested in subaccounts and your principal could fluctuate depending on the rise and fall of the underlying investments. Due to the market risk, some investors purchase variable annuities along with a “living benefit income rider” that will guarantee a certain amount of income even if the investment performs poorly.  Strong variable annuity contract performance typically provides a higher income stream than the guaranteed income amount promised by the contract.   Variable annuities may also offer death benefit riders that will guarantee a certain amount of assets will be left to beneficiaries, regardless of market performance.

In addition to the protection features, investors in annuities enjoy tax-deferred growth of earnings. Taxes are paid when the earnings are withdrawn or when the contract is annuitized for monthly payments.

Annuities are long-term investments and will often have surrender charges, as well as other fees and expenses, so you should be careful not to invest a large portion of your liquid net worth into annuity contracts. Because of the complexity of annuities, you should understand the features, risks and costs prior to making a purchase. Your Benjamin F. Edwards & Co. financial advisor can help you analyze your situation and discuss various option to consider as a complement to your portfolio.

Note: All annuity guarantees are subject to the claims paying ability of the issuing company.

Variable annuities are subject to investment risk, including loss of principal, and contract/policy values fluctuate daily. Investment returns and principal value will fluctuate with market conditions so that units, upon distribution, may be worth more or less than the original cost.