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If I make it, can I keep it?

by Craig Moser on July 24, 2020

In January of this year, market values were up and everything was great.  However, if you look again in March, values aren’t so great.  There are years that make us happy and then there are years with a huge amount of market volatility.  Where it will go is anyone’s guess.  So, outside of withdrawals, the real question is:  If I make it, can I keep it?  Well, one of the investment we use that allows you to make it AND keep it are fixed indexed annuities.

Fixed Indexed Annuities*

Generally, Fixed Indexed Annuities (FIA) allow you to keep your principal while giving you an option on an index for potential growth.  If the index goes up over that particular time frame, (like a year from point to point) you get to participate in that return and are able to keep it.  If the index goes down in value, you remain at your last highest point.  In other words, you stay even.  Past returns stay in each new time frame, you start.  This means you don’t ride the market up and down during periods of volatility.

The FIA can be a good option because of its more competitive rate.  In addition, you can purchase a rider that provides a stream of income for the rest of your and your spouse’s life.

Bonds and Certificates of Deposit

When discussing rates of return, bond returns are still variable.  Returns aren’t compounded back into your investment and are dependent on the stability of the issuer.  Also, interest rates don’t meet expectations some people expect.  Earning no more than 2% requires you to invest much more in guaranteed choices (like a CD) to meet your income requirements.  This leaves very little growth versus time frames like the ‘90’s.

Inflation

Another big obstacle is the cost of most things goes up over time.  If your cash flow remains level,  inflation causes you to lose purchasing power.  Your cash flow remains the same, but it buys less.

Can I Keep It?

In my opinion, a good default rate of payout is 5% annually against your income base.  This level should have little, if any impact, on your value going down while taking withdrawals each year.  As a rule of thumb, a consistent cash flow of $5,000 for every $100,000 of income base should be a reasonable expectation. It should also be one a large insurance company is willing to contractually guarantee.

If the investment component keeps up with or exceeds the income being withdrawn, when you pass away, the remaining balance is available to your heirs.  However, if you live long enough to spend all of the money  invested in your FIA, the insurance company continues to pay you the income promised for life.  In this scenario, you positively answer the question of: “If I make it, can I keep it?”

Important Note

Annuities are long-term investments. They are designed for people with sufficient assets to cover for living expenses and other unexpected emergencies.  A fixed indexed annuity is not a registered security or stock market investment and does not participate directly in any stock or equity investment or index. Annuities are not deposits.  They aren’t  guaranteed by any bank, and are not insured by the FDIC or any other agency of the US. All guarantees are solely backed by the financial strength and claims paying ability of the issuing insurance company. Please note the application of surrender charges could result in a loss of principal, the minimum guaranteed return may be 0% and investment return based on market increases may be capped. The guaranteed account value of a fixed-indexed annuity only applies when holding the annuity until the end of the contract term.  Surrendering the annuity before the end of the contract term may result in loss of principal.  With the purchase of any additional-cost riders, the contract’s values reduce by the cost of the rider. This may result in a loss of principal and interest in any year in which the contract does not earn interest or earns interest in an amount less than the rider charge.

 

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