In The Retirement Pros, Dr. Shelby J. Smith wrote an article about “A Fixed Index Annuity Designed Exclusively for 401k Plans.” We all know how important it is to maximize the contributions we put into our 401k’s at work. We’ve been told to put the maximum amount towards our retirement savings and make sure we put enough to maximize our employer match, if we’re lucky enough to have one. But those in the finance world who have the job of making sure our 401k’s last us through retirement have had a hard time taking those savings and turning them into a lifetime income stream. Some of the more traditional investment plans in retirement aren’t reliable enough to guarantee this lifetime income.
While saving for retirement and contributing to 401k plans, we are typically advised to use as risky of investments as we are comfortable with because it should allow us the highest growth over a long time frame. But once it comes time to receive our payouts, we need more conservative investments to make sure our savings will last as long as we live. A fixed indexed annuity is one of the best ways to transfer your 401k savings into an investment that will offer you lifetime guaranteed income. Barriers that were previously there making it difficult for insurance companies to offer indexed annuities as easily as other investments in 401k plans have recently been removed. Now there are new fixed indexed annuities developed by insurers specifically for lowering risk as retirement approaches and you are ready for income payouts.
There are many reasons that fixed indexed annuities work in 401k plans. The value in traditional investments changes as the stock market fluctuates and interest rates rise and fall. In the past few decades, the stock market has fallen dramatically, financial markets have shown their volatility, and the overall economic market has remained uncertain. Many fixed rate investments are offering low growth right now and don’t protect against inflation. Fixed Index annuities help to combat all of these downfalls related to other 401k investment options. They are not only good for people ready to retire, but also for those who simply are averse to risk. It’s okay if taking on more risk makes your stomach churn! There is still an investment option for you.
It is possible to know your minimum amount of guaranteed income in retirement if you choose to invest in a fixed indexed annuity. As long as you and your employer continue with the scheduled contributions, an optional guaranteed lifetime income rider along with knowing the roll-up interest rate in your indexed annuity allow you to know what the balance in your annuity account will be. In addition to knowing how much income you’ll receive, your annuity value will only remain the same or go up, even if markets take a dive before you opt for your income. Even if your actual annuity account balance goes down to nothing, you will continue getting monthly payments until death. You also have the option to stop and start your payments if needed as well as taking lump sum payouts. A fixed indexed annuity might be the perfect investment for your 401k account.
Written by Rachel Summit
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