WOODS INSURANCE

 

Investing

Choosing the right vehicle for your retirement savings can be difficult.  With so many choices, which approach is right for you?  On one hand, most people want safety — a guarantee for their principal.  On the other hand, many prefer the potential of higher returns…but without the risks of an unstable market.  Fixed-rate investments cannot offer the potential of market-like returns and stocks and mutual funds carry risks that many people find unacceptable. 

Are your choices limited to a guarantee of principal with minimum interest or to the potential of higher returns but with the risk to principal of market loss? Now you can have the best of both worlds; guarantee of principal and the potential of market-linked growth with no risk due to market downturns. An Index Annuity provides you with all of the best features of a traditional fixed annuity: Guarantee Of Principal

Unlike most securities or mutual funds where your account balance can fluctuate due to market performance, premium deposited into an Index Annuity is guaranteed to never go down due to market downturns. A contract holder of an Index Annuity participates in market-related growth without market-type loss.

In addition to the guarantee of your principal, the index annuity contains a Minimum Guaranteed Cash Value (MGCV) which grows independently of your Accumulation Value at a specific interest rate. This value provides a standard of comparison for your annuity values throughout the life of the annuity. Thus, in a worst-case scenario where the stock market made a downturn or achieved no growth during the entire surrender period, you would be guaranteed to receive your original amount of premium back plus a minimum amount of interest.

Fixed or index annuities are not for everyone.  In exchange for a guarantee of safety of principal, you give up some access to your funds.  So annuities are better for money that is set aside for the future.  Generally, withdrawals from annuities are limited to 5% or 10% per year and carry steep penalties for excess withdrawals.  Annuities have a long lifespan—so these restrictions can last for several years. Here’s a good rule of thumb:  Make sure you have enough money set aside for emergencies and opportunities before purchasing an annuity.  Discuss your financial future, your health and your goals for any investment with a professional.  I will always review your financial picture before recommending any course of action—including the purchase of an annuity. There are other annuities, variable annuities, that may be especially unsuitable for retirees because these annuities are subject to market risks, carry fees that can eat into returns, and have long surrender periods with high surrender charges.  I do not recommend variable annuities nor do I offer them.

All annuity values accumulate on a tax-deferred basis until withdrawn. Therefore, your money can grow faster because you earn interest on dollars that would otherwise be paid as taxes. Your principal earns interest and the interest compounds allowing you to accumulate more money over a shorter period of time, thereby earning a greater return on your investment.

While the Index Annuity concept offers many features of a traditional fixed annuity, it has a rather unique feature that allows a potential of stock market-linked growth without the potential of any market-type loss. In contrast to a securities-type product or mutual fund where the investor bears the market risk, the Index Annuity concept insulates the contract holder from any risk of market downturns.

Earnings on an Index Annuity are based on stock market-like performance from certain indices. But what is indexing? Indexing is simply an investment strategy that mirrors the performance of select securities, such as the Standard & Poor's 500 Index'. The S&P 500' is a collection of 500 select industry leaders and thus a benchmark for U.S. Stock Market performance. An Index Annuity is linked to the performance of this type of market index, without the risk of directly participating in stock or equity investments. With indexing, we can participate in a diversified passive investment strategy: a link to the market and its potential gains without subjecting ourselves to the potential downfalls of the market.

The following is a comparison of how features are treated within an Equity Index Annuity and most mutual funds or Variable Annuities (VAs) in the marketplace today. Although both concepts are similar, there are some unique features:

EXPECTATIONS FOR THE INDEX ANNUITY CONCEPT

The concept of an Index Annuity is a simple one: allow the potential for market-linked gains without exposure to the market risk. Contract holders enjoy the guarantees and safety of principal even while being linked to market growth. However, they should not expect Index Annuities to mirror the exact performance of any stock market indices.

Since an Index Annuity uses a passive investment strategy, it will not mirror the exact return of the stock market index. The Index Annuity is a powerful financial tool designed to meet your long-term retirement needs. Get the best of both worlds with an Index Annuity today!