Annuities for Growth and Income

Annuities for Growth and Income while also Providing Principal Protection

Protect Your Retirement Nest Egg with Principal Protection

Retirement should feel peaceful. But for many people age 50 and older, it can feel uncertain. Is your retirement success overly depended on stock market success? If the stock market and the mutual funds in your 401(k) or IRA suddenly dropped by 50%, would you be okay? Do you have a plan for a stock market crash? An annuity may provide the principal protection you may need to navigate a stock market crash.

You may be retired, close to retirement, or still helping children and grandchildren while trying to protect your own future. Regardless you need a “bad investment” survival plan.

Retirement Questions You may wonder:

• Will I have enough money?
• What if the stock market drops again?
• What if I live longer than expected?
• Will I become a burden on my children?
• Will there be anything left for my loved ones?
• What if raising inflation eats into my spending power?
• What if raising tax-rates reducing my saving?

These concerns are real and deserve thoughtful consideration and planning.

For many retirees and soon-to-be retirees, properly structured annuities may help provide growth, income, and protection from market losses.

There are various types of annuities. Annuity types include:

• Variable annuities (subject to stock market losses)
• Fix annuities (stated interest rate)
• Fix indexed annuities (total protection from the stock market)

Variable annuities are very expensive, with many fees, and can lose money. In our opinion, there is no good reason to buy variable annuities of any kind. Income guarantees available in a variable annuity could also be found in a fix index annuity without the downside risks and cost.

Considering only the safer and conservative annuities, the two basic subtypes are “income annuities” and “growth annuities”. Both types can protect your principal investments. Used properly together, along with a well thought out retirement plan, could provide for a successful retirement. Together, they can help provide income and growth to cover rising living costs (inflation) and future higher taxes.

The Fear of Running Out of Money Is Real

• One of the biggest fears retirees face is outliving their money.
• No one wants to spend retirement worrying every month.
• No one wants to depend on their children.
• No one wants to feel like a burden.
• No one wants to wonder whether they will have enough at age 80, 90, or beyond.

These are real fears. They deserve real answers.

This is where certain annuities may help. Many annuities offer guaranteed lifetime income features. These features can create an income stream that continues for life, no matter how long you live.

Think of an income annuity like creating your own private pension. However, just like with a pension, inflation and raising future tax rates could cut into the spending value of the monthly income.

An income annuity coupled with other growth investments, including growth annuities, can cover higher future inflation and higher taxes.

Having an income annuity, securing your basic financial needs, may allow you to feel more adventurous with your other investments.

Fixed Indexed Annuities Can Protect Principal

A Fixed Indexed Annuity, FIA, can give you the security of principal protection while still offering growth potential.

Your money is NOT directly invested in the stock market.

Instead, the insurance company may credit interest based partly on the performance of a market index. If the index performs well, you may receive interest credits based on the terms of the contract. If the market goes down, your principal is protected from market-related losses.

This means stock market crashes do not directly reduce your annuity principal.

That protection can be powerful. It can help you avoid selling investments during a market downturn. It can also give you a more stable source of money when other accounts need time to recover.

Protection from Stock Market Volatility

Many retirement accounts rise and fall with the market. That may be acceptable during working years. But in retirement, withdrawing money during a market decline can be dangerous.

If your account drops and you still need income, you may be forced to withdraw from a reduced balance. That can make it harder for your portfolio to recover.

A fixed or fixed indexed annuity may help solve part of this problem.

With many FIAs, gains may be locked in. Future market declines will not erase previously credited interest or reduce protected principal because of market losses.

This can create a safer pool of money to draw from during difficult market periods. It may also allow the rest of your investments more time to recover.

A Private Pension for Retirement Income

Many retirees miss the security of a traditional pension. A Fixed Indexed Annuity with a lifetime income feature may help create something similar.

With certain annuities, you can receive planned income payments from your annuity’s cash value. If that cash value becomes exhausted, the insurance company may continue making payments for the rest of your life, depending on the contract terms.

This means you cannot outlive that guaranteed income stream. For someone who worries about living too long and running out of money, this can be a meaningful layer of protection.

Some annuity-based income plans may also leave residual benefits for heirs, unlike many traditional pensions that stop after the retiree and spouse pass away.

You may want income for yourself. But you may also want to leave something behind for people that are not covered by your pension.

Growth Annuities Without Market Losses

Many people think annuities are only for income. But certain annuities are optimized for growth potential while protecting your principal. They may even perform similarly to the stock market over long time periods.

Growth annuities could replace lower-yielding bank-type deposits, CDs, money market accounts, and bonds while providing the stability you desire. You do not have to settle for low-return investments to achieve stability of principal.

Fixed indexed annuities are not designed to beat the stock market every year. They are designed to provide safer growth potential without direct market downside.

Because FIAs avoid market-related losses, they do not need to recover from down years the same way stock market-based investments do. This stability is important for retirees.

Some growth optimized indexed annuities may offer average cash value growth potential in the 4% to 9% range, depending on the contract, crediting method, caps, participation rates, and market conditions.

In recent years, especially since 2022, many fixed indexed annuity rates and crediting options have improved.

This may make certain FIAs more competitive compared to CDs, bonds, and other low-volatility options. For conservative investors, this can be worth reviewing.

The Power of Principal Protection

The most attractive feature of fixed and fixed indexed annuities is principal protection.

Unlike variable annuities, fixed and fixed indexed annuities do not place your money directly into the stock market. Your money is held by an insurance company. Your contract may credit interest, but market losses do not directly reduce your principal.

This gives retirees something valuable: stability. You may not want every dollar exposed to market risk anymore.

You may still want growth. You may still want income. But you may also want protection. Fixed and fixed indexed annuities are designed for that purpose.

Knowing that part of your retirement nest egg is a principal protected fix or FIA annuity can provide the confidence for you to invest other parts of you next egg in more aggressive investments. This may be because you know that some is secure from investment losses in a Fix or FIA annuity.

Income Features May Be Free or May Have Fees

Some annuities charge rider fees for guaranteed income features. Others may offer income guarantees without added rider fees. This is important. Fees can reduce growth and affect long-term results. At Serenity Wealth Management, we focus on fee-free annuities.

In many cases, there may be little reason to pay for an income rider if a strong no-fee option is available. Because annuity products have improved in recent years, especially since 2022, it may be worth reviewing older annuities. Older annuities may have lower income rates, higher fees, or less competitive income features compared to newer options.

This is especially true for variable annuities, which may carry substantial risks and high fees. The bad press you hear about annuities is almost always about variable annuities which we never recommend at Serenity Wealth Management.

Common Misconceptions About Annuities

There is a lot of confusion about annuities. Much of it comes from mixing up variable annuities with fixed indexed annuities. These products are very different.

Misconception #1: All Annuities Have High Commissions

In contrast, you pay no commissions on annuities purchased through Serenity Wealth Management.

There are no commissions when buying a fixed indexed annuity. All of your money goes to work for you immediately. Your annuity advisor gets a finder’s fee directly from the insurance company that does not directly affect your investment.

Other types of annuities may have commissions.

Misconception #2: All Annuities Have High Fees

Many variable annuities have high fees. In contrast, many fixed and fixed indexed annuities have no fees unless you choose optional income or death benefit features that may include rider fees. At Serenity Wealth Management, we avoid optional features and fees as they reduce growth. This is why reviewing the contract with a qualified advisor matters.

Misconception #3: Annuities Lock Up All Your Money

Annuities contracts have designed maturity periods of 2 to 10 years. But this does not mean you are stuck. Most annuity products allow you to take 10 percent of your money out each year before maturity without surrender charges.

Most annuities have surrender charges if you withdraw more that 10 percent annually before the surrender charge period ends. These charges typically start at about 8 percent and quickly decline over time. The surrender charges disappear at or before maturity. Surrender periods are typically 3 to 10 years.

For comparison, a stock market investment could lose 10% or more in a single bad day. With the right annuity, the surrender charge risk may be small compared to the risk of market volatility.

Serenity Wealth Management researches for and recommends annuities with lower surrender fees. Surrender fees are typically lower in the State of California.

Misconception #4: You Must Give Up Your Principal to Receive Income

With many modern annuities, you no longer need to annuitize, or surrender your principal, to receive lifetime income. You may still maintain cash value for a period of time.

Annuity residual value or death benefit may also pass to your heirs. This is an important difference from older annuity designs. This is an important difference from pensions which provide no benefits after you and your spouse are gone.

Be Careful with Variable Annuities

Variable annuities are different from fixed and fixed indexed annuities. At Serenity Wealth Management, we do not recommend investing in variable annuities.

Variable annuities invest in the stock market through mutual funds. They do not guarantee principal protection. This means your cash value can decline when the stock market or mutual funds decline. For many retirees, that is a serious concern.

Variable annuities may also have higher fees. The combination of market risk and higher fees can make them a poor fit for many conservative investors. Many brokerage firms may recommend variable annuities because they can generate high fees for the firm.

For safe growth with total downside protection, we recommend only fixed or fixed indexed annuities.

If you have a variable annuity, we highly recommend you review the policy and consider replacing it. Variable annuities have money directly invested in the stock market and could dramatically drop in value.

Annuities May Help You Leave Something Behind

Retirement planning is not only about income. For many people, it is also about legacy.

You may want to protect your spouse. You may want to help your children. You may want to leave something for grandchildren. You may want your money to reflect a lifetime of hard work.

Some fixed indexed annuities may continue to grow even after lifetime income has been activated. This may increase the chance that cash value remains available for heirs.

Some income payments may also have the potential to increase over time, depending on the contract. This may help reduce the long-term impact of inflation. These features are not available in every annuity, so the contract must be reviewed carefully.

Review Your Pension and Family Longevity

When planning retirement income, it may also be helpful to review your pension options.

In some cases, taking a lump sum pension and using it to create a private pension annuity may be worth considering. This may be especially true for some private company pensions. However, federal or state-sponsored pensions are often harder to beat. See the section on this website about pensions.

Family longevity also matters. If you are healthy and have a family history of long life, guaranteed lifetime income may be even more valuable. The longer you live, the more important dependable income becomes.

A Safer Foundation for Retirement

Retirement does not have to feel like a guessing game. An annuity can remove much of the uncertainty in retirement. A properly structured fixed or fixed indexed annuity may help provide:

• Principal protection
• Growth potential
• Tax deferral
• Protection from market losses
• Guaranteed lifetime income options
• A more stable retirement income plan
• Possible residual benefits for heirs

This does not mean every retirement dollar should go into an annuity. It means part of your retirement nest egg may deserve protection. Fixed Indexed Annuities represent that part of your retirement that is protected from stock market risks. This allocation is generally best limited to a maximum of about 60% to 70%. More aggressive investors may wish to allocate 30% to 40%. This allow other parts of your retirement nest egg to be in more growth-oriented investment that could help you keep up with inflation and raising taxes. A 50% to 50% mix is good for many investors. It depends on your personal risk tolerance and how you feel about the future stock market.

A good retirement plan should provide you with comfort, security, confidence, and serenity that you are well prepared for a successful retirement. This is why we named our company Serenity Wealth Management. A good retirement plan should:

• Help you sleep at night.
• Protect your income.
• Reduce fear during market drops.
• Help you avoid becoming a burden to your children.
• Give you confidence that your money can last.
• Allow you to enjoy spending in your retirement.
• Provide lasting serenity

Is an Annuity Right for You?

Annuities are not one-size-fits-all. The right annuity can help protect your future. The right annuity advice can help you avoid unnecessary fees, risk, or restrictions. That is why an annuity review is so important.

Curtis Hill, CFP, IAR and Irina Hill, CPA, IAR, provide fiduciary financial advice, wealth management, investment advice, retirement planning, and life insurance in the Long Beach, CA; Lakewood, CA; Carson, CA; Bixby Hills, CA; Signal Hill, CA; and the greater Los Angeles, CA areas. Serenity Wealth Management also provides advice on how annuities can provide principal protection and guaranteed income as well as significant growth potential.

Is a principal protection program or an annuity the right investment for you? Do you have an older annuity that needs a performance review? Annuity issues before 2022 often have much lower rates than today’s annuities. Click here to schedule a review of your current annuities.

Annuity Article Summary and Conclusion

Annuities can be a valuable tool for securing your financial future, but navigating them can be challenging. With the right guidance, you can ensure your investments align with your long-term goals, offering both growth and stability. If you’re uncertain about your current annuities or considering a new investment, a comprehensive review can provide clarity and peace of mind.

Reach out today to explore how we can help you make informed decisions for a secure and prosperous tomorrow. Understanding the nuances of different annuity types is essential for maximizing their benefits. Our team is equipped to educate you on the various options available, helping you make choices that suit your risk tolerance and financial objectives. We also offer insights into market trends that may impact your investments, allowing you to adapt your strategy accordingly. Don’t leave your financial future to chance; let us guide you toward a more confident investment journey.