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What does the perfect retirement look like to you? It might be relaxing on the beach, traveling the world, giving back to your community or simply spending time with family. The fact is, no matter how you plan to spend your retirement, you need a solid financial plan to get there.
An annuity might be one solution to help you achieve your goals.
What is an annuity?
Simply put, an annuity is a contract between you and an insurance company. It is designed to protect and grow your money, and then provide a stream of income during your retirement.
Here are some reasons you might want to consider purchasing an annuity:
- Protection and growth: You want to protect your money from loss while still having growth opportunity.
- Tax-deferral: You want to take advantage of tax-deferred growth.
- Retirement income: You want to turn the money you’ve saved into a regular paycheck for a specified number of years or for life.
- Death benefit: You’re looking for an efficient way to leave a legacy for your loved ones.
Types of Annuities
Is Your Portfolio Protected From Rising Interest Rates?
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%.
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
- Fixed-Indexed Annuity
- Interest Rates