Is Your Portfolio Protected From Rising Interest Rates?

Male hands with pens reviewing papers with graphs

If you are counting on fixed income investments as a primary source of retirement income, you may have more risk in your portfolio than you realize.

When interest rates rise, bond fund values generally fall. This inverse relationship could cause the value of your fixed income portfolio to decrease, which means you may have to settle for less retirement income than planned.

For every 1% in interest rates, bond fund values generally fall by 1% for every year of duration.

If interest rates rise 2%, the value of a bond fund with a 3-year duration would fall by approximately 6%.

Graph showing decrease in bond fund value

A fixed-indexed annuity may help

Purchasing a fixed-indexed annuity may help diversify your portfolio and may avoid the negative impact of rising interest rates. Unlike bond funds, fixed-indexed annuities credit interest that is based, in part, on the performance of a market index. Additionally, fixed-indexed annuities offer:

  • Tax-deferred growth
  • Protection from market loss
  • Access to your money with penalty-free withdrawals
  • Opportunity to receive lifetime income

Talk with your insurance professional to see if a fixed-indexed annuity is right for you.

A fixed-indexed annuity with a market value adjustment may be negatively affected by rising interest rates if you take a withdrawal during the early withdrawal charge period.

If you withdraw money from an annuity during the early withdrawal charge period, an early withdrawal charge may apply. Early withdrawal charge rates and periods vary by annuity product. An early withdrawal charge will reduce the account value and may have a significant effect on the benefits available with the annuity. Withdrawals and distributions may be subject to income tax and, for some tax qualifications, may be restricted. If withdrawals or distributions are taken prior to age 59½, a 10% federal penalty tax may apply.

This article provides general information about the correlation between interest rates and bond fund values, which may not apply in all situations or to all bond funds. Refer to FINRA Investor Alert 13_0066.1 – 03/13 for more information.

Great American Life Insurance Company® and Annuity Investors Life Insurance Company® are not investment advisers, and the information provided in this document is not investment advice. You should consult your insurance professional for advice based on your personal circumstances and financial situation.

Products issued by Great American Life Insurance Company and Annuity Investors Life Insurance Company, members of Great American Insurance Group, Cincinnati, Ohio.

Not FDIC or NCUSIF Insured • No Bank or Credit Union Guarantee • May Lose Value • Not Insured by any Federal Government Agency • Not a Deposit