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Fixed & Indexed Annuities Balance Risk with Returns


Larry Martin of the Leavenworth Times in Kansas has a pyramid example of retirement investing.  In the article “Annuities good retirement savings options,” Martin says that both fixed annuities and indexed annuity products are good options for growing your retirement savings.  His example includes a couple looking to save for retirement and pondering the best options.  The safest investments are at the top of his pyramid and the most risky are at the bottom.  Bank’s savings accounts and CD’s are the safest investments because of their FDIC insurance coverage.  But a savings account will only earn you around .5% in interest and a good CD will earn you around 1.74% in interest.  Since most retirees want to earn more than that, they should probably spread their money around.

Fixed annuities offer better rates than banks, but the historically low rates are still around 3%.  Without FDIC insurance, your payout from fixed annuities is based on the strength of the insurance company and any state guarantees in existence.  Indexed annuity products are the next level in Martin’s pyramid.  They guarantee your principal like a fixed annuity and also base your rate of return on a stock market index.  There are many options to offer you added guarantees for a fee, but some may be worth it to you.  Indexed annuity payouts are also based on an insurer’s strength.  Equities like stocks, bonds, and ETFs are the riskiest investments in the pyramid, but also can offer the highest payouts.  You need to find the best way to balance your desire for gains with your tolerance for risk.  Fixed annuities and indexed annuities are two good investments to help balance your risk and reward.

Written by Rachel Summit

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