Worried about the direction the financial markets have taken over the past few months? You’re not alone. After nine consecutive years of growth, the markets ended 2018 on a down note. The S&P 500 finished the year down more than 6 percent, the first time it has ever finished a year negative after being positive through the first three quarters.1
In fact, some indexes have already entered bear market territory. The Nasdaq dropped more than 23 percent from its Aug. 29 high. The Wilshire 5000 and Russell 2000 also dropped more than 20 percent from their respective peaks in early September.1
If you’re approaching retirement, these losses could be stressful. When you’re younger and just starting your career, you have time to absorb losses and recover. That may not be the case if you’re only a few years from retirement. You’ll soon need to use your assets to generate income. A substantial decline may force you to delay retirement or make cuts to your planned lifestyle.
Fortunately, there are steps you can take to protect your nest egg and your retirement. Below are three tools that can help you reduce your exposure to downside risk. Talk to your financial professional to see how these may play a role in your financial strategy.
Fixed Indexed Annuity
When it comes to investing, risk and return usually go hand in hand. Those assets that offer the most potential return often come with the highest exposure to risk. Assets that have little risk also offer little potential growth. It’s difficult to find growth opportunities that don’t have downside risk.
There are some tools available, though. One is a fixed indexed annuity. In a fixed indexed annuity, your assets grow on a tax-deferred basis. The growth comes in the form of annual interest payments.
Your interest rate each year is based on the return of a specific index, like the S&P 500. The better the index performs in a given period, the higher the interest rate will be, up to a limit. If the index performs poorly, you may receive less interest, but your contract won’t decline in value.
Many fixed indexed annuities have principal guarantees*. That means you’ll never lose principal because of market declines. A fixed indexed annuity could be an effective way to continue increasing your assets without exposing yourself to risk.
Deferred Income Annuity
Are you concerned about your ability to generate retirement income in the future? Or are you worried that your retirement income isn’t guaranteed*? A deferred income annuity, also known as a longevity annuity, could be an effective option.
With a deferred income annuity, you contribute a lump-sum amount and pick a date in the future. At the specified time, the annuity company will begin paying you an income stream that’s guaranteed* for life, no matter how long you live. Work with your financial professional to project your income and see if a deferred income annuity can help you fill any gaps.
You’ve probably purchased life insurance at some point in your life with the goal of protecting your spouse, children or other loved ones. Life insurance is a highly effective protection tool, but it can also do more.
Some life insurance policies have a cash value account. Each time you make a premium payment, a portion goes into the cash value. Those funds grow on a tax-deferred basis over time. The growth usually comes in the form of dividends or interest, depending on the policy. You can also use the life insurance policy to generate tax-free income in retirement via loans or withdrawals.
If you have a life insurance policy, you may want to explore how you can use it to achieve low-risk, tax-deferred growth and possibly create supplemental income in the future. Or you may want to look at new policies and see how they can help you protect your assets.
Ready to protect your nest egg? Let’s talk about it. Contact us at Stoll and Basler Financial Services. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
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