How Are You Protecting Your Retirement Nest Egg?

Written By: Katie Loveday

Let me tell you a story. Once upon a time, there was a man named John. John is a husband, a father, and five years ago rolled over his IRA to a financial advisor. So he invests $79,735, his entire savings, expecting his money to steadily grow over time in a relatively safe account so that he could live out his golden years peacefully and comfortably. Sounds great, right? Wrong.

When John invested his savings, he thought he had a  knowledgeable financial advisor to educate him about the risks of stock market investments. A year after he placed his money in the IRA, there is a market upturn, and his investment grows 4.50% to $83,322. Right now John’s feeling pretty good about his retirement plan. Things are looking up. The next year, however, the market has a bad downturn, and John’s account drops -33.24% to $55,625. That’s $24,110 less than what he originally invested! His money would have been safer if he had hid it under his mattress at home. After that the market begins to steadily rise again: 14.16%, 6.43%, .67%, 2.32%, and so on. But John’s ending market value is still only $70,489, and just one bad market year could devastate his funds again. So John and his family are stuck with his IRA investment plan, and they all did not live happily ever after.

While I have used a fictitious name in order to protect the innocent, this is a true story, and it’s happening to your friends, your neighbors, and countless other Americans every day. It could be happening to you. Wait! Don’t jump yet. Back up off that ledge and keep reading. There are other options. You can invest your money wisely and be protected from these catastrophic losses.

The first alternative is called a variable annuity. Many financial advisors push these investment portfolios as a safe alternative to market investments. You even might get a call or visit from someone, let’s just call him Mr. Financial Advisor, who wants you to choose this type of annuity for your retirement needs. Mr. Financial Advisor will be glad to tell you how wonderful variable annuities are. He will offer you market like returns without the market risks. He’ll say, “Guaranteed income for life!” Well, that does sound great. Why wouldn’t you invest your retirement funds this way? What Mr. Financial Advisor is not so excited to tell you about are the fees associated with a variable annuity account. Remember, despite what Mr. Financial Advisor may tell you, the word “variable” denotes risk. In the case of variable annuity portfolios, this risk comes in the form of the exponential amount of fees that will be applied to your account. These fees will reduce the value of your investment account and your potential returns. In fact up to 4% of growth can be taken out of your account by management fees alone each year! So if you choose to invest in this type of annuity, you could also be losing your hard earned money.

Before you lose hope entirely, I will introduce you to another option for your retirement nest egg: the Fixed Index Annuity or also known as an Equity Index Annuity. A fixed index annuity could be the solution to your investment woes. Like the variable annuity, this option also offers a guaranteed lifelong income and the potential for high earnings. An indexed annuity is different from other annuities because its interest rates are partially tied to the performance of a stock market based index (such as S&P 500 or Nasdaq 100). With this type of annuity, you have the growth potential, but also principal and interest guarantees. Policy holders who own fixed index annuities do not ever have to fear the ups and downs of the stock market. Unlike variable annuities, a fixed index annuity has no advisor fees. Are you having trouble figuring out which is the best option of these three? I doubt it.

If you are close to retirement age, if you are young and starting a family, or if you’re of any age or background and this article has struck a chord with you, don’t just sit there and let the money you have worked to save disappear. Invest your retirement funds in a fixed index annuity and protect yourself from loss due to market downturns or account fees.

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