By John Drachman
If you’re a former member of the ‘80s “Me Generation,” odds are you may need a source of retirement income sooner than you expected. According to a 2020 J.P. Morgan Asset Management survey, the top three reasons individuals felt pressured into early retirement included:
- Changes at their company (downsizing or closing): 35%
- Health problems or disability: 35%
- Care for spouse or family member: 13%
Luckily for Baby Boomers planning for retirement in our C-19 haunted world, fixed income annuities (FIAs) have emerged as an especially attractive strategy.
Where does the income come from?
In contrast to market-driven solutions like stocks, bonds and mutual funds, FIAs help insulate an annuity owner from the risk of loss due to market downturns. And, while performance is limited on the upside in FIAs, they provide a guaranteed floor on the downside regardless of market conditions.
Like a pension plan you build yourself, an FIA in effect is a contract between you and an insurance company. In exchange for your payment of an insurance premium, the insurance company gives you the opportunity to earn additional interest based on the performance of a market index. Then, it pays you that income now or in the future. Of course, it’s important to keep in mind that buying an annuity requires the insurer to be financially sound enough to continue making payments over the long-term.
Receive lifetime income your way
Which FIA might be right for you? Matt Carey, a former policy advisor for the U.S. Treasury and co-founder of Blueprint Income, detailed some of the fixed annuities he particularly liked in April’s Forbes:
- Top Rated: American Life (B++, 3.32%, 5 year term)
- Top Rated for a Product Allowing Withdrawals: Athene (A, 2.55%, 5 year term)
- Top Rated from A+ Rated Insurer: Protective (A+, 2.45%, 10 year term)
- Top 3 Year Rated: Sagicor Life (A-, 2.50%)
- Top 5 Year Rated: American Life (B++, 3.32%)
- Top 7 Year Rated: Sentinel Security Life (B++, 3.20%)
“Financial strength ratings (B++, A, etc.) always matter,” he said, “but especially in times of market stress. Also, make sure you understand the liquidity provisions of the fixed annuity you’re considering. Generally, those with more stringent withdrawal provisions will pay a higher rate.”
If you’re in the market for guaranteed income, consider asking an insurance agent or financial advisor how you can receive predictable monthly payments from an investment strategy you won’t outlive. According to the Insurance Retirement Institute, retirement-minded baby boomers who work with financial professionals in choosing their annuity tend to be more satisfied with their income strategy — as well as their overall retirement outlook.
John Drachman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.