You probably know that inflation makes things more expensive. Take groceries, for example. According to the Consumer Price Index, over the past 30 years, the price of eggs has nearly doubled and the price of bread has more than doubled. Coffee costs about a dollar more per pound.
Because of inflation, the $20 in your wallet today can’t buy as many groceries—or other things—as the $20 in your pocket could back then.
So, what does that have to do with retirement?
Our life expectancies are increasing, which means you could spend up to 30 years or more in retirement. If your retirement money can’t keep up with inflation throughout that time, it will lose its buying power (just like that $20).
Unfortunately, many people don’t take inflation into account when they think about their retirement savings. That’s why you may want to consider a fixed indexed annuity (FIA).
Unfortunately, many people don’t take inflation into account when they think about their retirement savings
A FIA is an annuity that credits interest based—at least in part—on the positive performance of one or more market [indexes].
This gives FIAs the potential to earn more than cash or other fixed-rate products.
While they are designed for long-term investment, most FIAs provide access to a portion of your contract value—usually 10%—penalty-free each contract year. Also, the interest you earn in a FIA grows tax-deferred (it’s not taxed until you take your money out). This may be advantageous if you’re in a lower tax bracket when you begin taking distributions from your annuity.
Finally, as with any annuity, you have the option to convert your contract value into a regular series of payments, including lifetime income. This can be particularly valuable if your only other source of guaranteed lifetime income is Social Security. Calculator: How much Social Security income will you receive?
FIAs aren’t for everyone, so ask your financial professional or insurance producer if a FIA might be a good fit for your individual needs and circumstances.