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Certified Safe Money Admin

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Risks – Should You Gamble with Your Retirement Savings?

According to research from Fidelity’s Retirement Preparedness Measure, which takes into account current savings rates and account balances, less than half of all Americans will be able to maintain their current standard of living in retirement. So, it makes sense that many who are approaching retirement are looking for ways to increase the value of their portfolios. But should you really gamble with your retirement savings?

Increasing Risk Does Not Guarantee More Reward

We’ve all heard the sayings about “no risk, no reward.” But even though placing your principal in more aggressive investments may lead to a nice big return, doing so can also put your hard-earned savings at risk – and the more you lose, the more it takes just to get back to even. 

As an example, if you place $10,000 into an investment, and it loses 50% of its value in Year 1, it will become $5,000. If in Year 2 the investment attains a positive return of 50%, it will then be valued at $7,500 – not the original $10,000. In this case, then, it will actually require a 100% return in order to just recoup the 50% loss.

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The Bigger the Loss, the More It Takes to Get Back to Even

If you lose: You need (to get back to even):
10% 11.1%
25% 33.3%
50% 100%
60% 150%
80% 400%

Because no one knows what will happen in the stock market, going “all in” with the intention of increasing your savings may not be the best strategy. Even if the market is moving in an upward trend, it could turn in a moment’s notice.

For instance, in mid-February 2020, the Dow Jones Industrial Average was at an all-time high, reaching 29,568. But due to the COVID-19 health pandemic, it only took a few short weeks for the DJIA to fall more than 10,000 points to just over 18,200. 

What if you were planning to retire the following month?

How Safe is “Too Safe?”

In order to reduce the risk of loss, some investors may turn to “safe” investments, like CDs and bonds. But this could be dangerous to your financial future, as well, because the pitifully low-interest rates being offered now (and likely well into the future) are not apt to meet, much less beat, future inflation. With that in mind, going this route can be dangerous to your future purchasing power.

So, what is the answer to attaining higher growth – without having to gamble with your savings – while at the same time keeping your principal safe?

One option is a fixed indexed annuity or FIA. 

In fact, a fixed indexed annuity can offer you the potential for market-linked growth AND principal protection in any type of market – as well as a guaranteed lifetime income stream in retirement. 

How to Increase Growth Opportunity without Added Risk

With a fixed indexed annuity, the return is determined, based on the performance of an underlying market index, such as the S&P 500 or the Dow Jones Industrial Average. So, when the index performs well in a given contract year, the annuity is credited with a positive return, typically up to a set “cap,” or maximum.

In return for the “limit” on growth, though, these annuities will keep your principal safe – regardless of any negative returns sustained by the underlying index(es). That is because fixed indexed annuities offer a guaranteed minimum “floor” – which is usually 0% – meaning that if the tracked index sustains a loss, the annuity will simply be credited with a 0%. 

Based on FINRA (the Financial Industry Regulatory Authority) guidelines, fixed indexed annuities must also provide a guaranteed minimum return – which will usually be between 1% and 3% per year. 

Because there are no losses to the principal in a fixed indexed annuity, the future positive returns can continue to build upon previous gains without the need to first make up for any loss. As an added bonus, the gain inside of a fixed indexed annuity is tax-deferred. 

Is a Fixed Indexed Annuity Right for You?

If you are approaching retirement, and you would rather not gamble with your retirement savings, then a fixed indexed annuity could be right for you. But even though these annuities can provide many of the same features, they are not all exactly alike. Therefore, it is recommended that you first discuss your specific objectives and needs with an annuity or retirement income specialist.

In order to set up a time to chat with a fixed indexed annuity expert, feel free to contact us at [email protected] with any additional questions you may have regarding annuities and safe retirement income strategies.

Find the most credible, highest-rated Safe Money advisors in your area.

If you are nearing retirement or already retired, you should consider safe money because your future is too bright to risk.

Are you a safe money expert?

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