How you position your money for retirement is a function of your individual circumstances; however, on average, retirement is a time to reduce investment risk. This means that your retirement money probably needs to be repositioned away from risky places like stocks, bonds, mutual funds and other securities whose value can decrease with movements in the market. Granted you can reduce risk by carefully selecting a well-diversified portfolio of blue-chip investments but there will always remain the volatility of the market that could cause them to rise and fall in value - sometimes by large percentages as many of you witnessed in 2000 through 2002. While some of you can afford to shoulder the risk others of you cannot bear, or simply don't want the stress associated with investment risk. Look at your retirement nest egg the same way you viewed your job: if you lose it, there goes your income.

Retirement is the time to lower your investment risk and turn your attention to safe money options. While you may have limited your upside potential by opting for safety first and preservation of principal, you have eliminated the potential rollercoaster highs and lows of the markets, the sleepless nights, the stress over market exposure and the potential for a devastating setback that could ruin your retirement lifestyle.


One safe money havens that will give you the upside potential growth of the stock market without any risk to your capital is an Equity Indexed Annuity. An equity indexed annuity earns interest based on changes in a stock market index (S&P 500 or Dow Jones Industrial Average). But, there is no risk to your capital because the insurance company that is issuing the annuity is guaranteeing your capital and the growth of your capital from loss.

Here's How an Annuity Works

An annuity is a contract between you (contract owner) and a life insurance company. The annuity's value and guarantees are backed by the financial strength of the issuing insurance company. As contract owner, you pay premium to the insurance company. In exchange for your premium, the insurance company promises to make payments to you at some point in the future.

Annuities Offer Important Benefits

Potential growth during the annuity's accumulation phase: During this initial phase, an annuity can be an ideal vehicle to help you accumulate money for your retirement.

Income for life and other options during the retirement income phase: When you are ready to start taking income, the annuity offers you a range of payout options. Some options may offer an immediate, single payment. Others may include income payments scheduled over a specific period of time, including your entire lifetime.

Tax deferral that can help your money grow: The money in your annuity can grow tax-deferred. This means you don't have to pay taxes on your annuity's growth until you begin to withdraw money from the annuity. The power of tax deferral, compounded over the life of your annuity's accumulation phase, may have a positive impact on the value your annuity generates for your retirement. Any distribution may be subject to ordinary income taxes and, if taken prior to age 59 1/2, to a 10% federal tax penalty.

Death benefit protection for your beneficiaries: Annuities are life insurance products. So it's only natural that they can give you peace of mind, knowing your beneficiaries are protected if you pass away.


Furthermore, you have access to your capital in the event a special need arises, i.e., if the annuity owner is confined to a nursing home for more than 60 days, or if the owner is diagnosed by a licensed physician as having an illness or condition resulting in a life expectancy of less than one year, or if the owner is under age 65 and becomes unemployed and remains unemployed for at least 30 days.

Equity Indexed Annuities are Different

An equity indexed annuity earns interest based on changes in an external equity based index. This is different from traditional annuities, which credit interest calculated at a fixed rate set in the contract. The selected index varies from day to day and is not predictable. When you buy an equity indexed annuity you own an insurance contract - you are not buying shares of any stock or index.

To summarize, an equity indexed annuity offers contract owners: The potential for growth by basing interest earned on the performance of a stock market equity index. There is a guaranteed minimum yield. If indexed interest is credited to your annuity's values, it can never be lost due to market index volatility. Your principal is never subject to market index risk. A downturn in the market index will not have a negative impact on your contract values. You will not lose money. This is guaranteed by the insurance company issuing the annuity.

For more information on equity indexed annuities and other safe money places, please contact an Allied Roth retirement counselor for a free evaluation.