Fixed income is something many Americans don’t understand, according to the 2019 survey, “Fixed Income, Not Fixed Thinking,” by BNY Mellon Investment Management, one of the largest asset managers in the world. The study revealed that the majority of Americans surveyed have a limited understanding of fixed income investments, regardless of age, income, education level, and other demographics. The lack of understanding ranged from bonds, different fixed-income solutions including fixed-income insurance products, comprehending how fixed-income plays into retirement planning, and understanding its risk in comparison to other asset classes.
The same study revealed that Americans think fixed income is important solely in the immediate run-up to retirement, or during the decumulation phase when investors start to draw from their retirement nest egg. However, fixed-income solutions can play a part in anyone’s portfolio at any age.
One such fixed-income solution, fixed-indexed annuities, offer protection of principal, growth based on the performance of the index it follows and provides fixed payments for the insured’s life during the decumulation phase. Interested is credited when the index value increases, but the interest rate is guaranteed never to be less than zero, even if the market goes down. All annuities are insurance products and not traded on public markets. Annuities are guaranteed by the claims-paying ability of the insurance company issuing them.
A secondary 2019 study by WealthManagement.com Research, “How Advisors are Using Fixed-Income Annuities,” reports that two-thirds of advisors surveyed are very familiar with these products and have incorporated them into client portfolios to obtain these key objectives:
- Principal protection
- Tax-deferred growth
- Retirement income planning
- Avoid Social Security income offset
- Current income
- Estate/Legacy planning
Before purchasing a fixed-indexed annuity, it is important to understand all fees associated with the annuity, if your money is available right away, and the surrender fees, if any. Secondly, there are pros and cons to purchasing a fixed-indexed annuity:
- Your principal is protected from a down market, and you won’t lose your initial investment or accumulation.
- Grow on a tax-deferred basis.
- The return is based on an index (ex. The S&P 500), which grows the annuity’s value over time.
- Provides a guaranteed lifetime income and protection against longevity risk; you receive annuity payments for life.
- Some are complex, costly, and aren’t always necessary for the investor.
- A Fixed-income annuity is not a growth-market product and is unregulated. Ask for written information from the insurer about the annuity product and don’t just accept the ‘sales-hype.’
If you have questions regarding fixed income options or fixed-indexed annuities as a way to protect the premature depletion of your assets during a down market in retirement, contact our office.
Additional Disclosure: The newsletter and links are being provided as a service to you. Please note that the information and opinions included are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. The information is not intended to be used as the sole basis for financial decisions. Nor should it be construed as advice designed to meet the particular needs of an individual’s situation.
Additional Disclosure: An annuity is intended to be a long-term, tax-deferred retirement vehicle. Earnings are taxable as ordinary income when distributed, and if withdrawn before age 59½, may be subject to a 10% federal tax penalty. If the annuity will fund an IRA or other tax-qualified plans, the tax deferral feature offers no additional value. Qualified distributions from a Roth IRA are generally excluded from gross income. Taxes and penalties may apply to non-qualified distributions. Consult a tax advisor for specific information.
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In addition Ronald A. Bartlett & Associates, LTD. are Registered Investment Advisors and has been working with the Communication Workers of America since 2007. At Ronald A. Bartlett & Associates, we know that it is your retirement, and you should have control over it. We offer our experience and knowledge to help you design a custom strategy for financial independence. Contact us today to schedule an introductory meeting!