A laddering strategy with a fixed indexed annuity is popular among those looking for growth and protection. Here is how it works!
A fixed indexed annuity (FIA) is a type of insurance contract that provides a guaranteed minimum rate of return and the potential for growth based on the performance of a stock market index, such as the S&P 500. Unlike traditional stock market investments, an FIA provides a guaranteed minimum rate of return, which helps to protect policyholders from market volatility and downside risk.
One popular accumulation strategy for FIA policies is the “laddering” approach. Laddering involves purchasing multiple annuities with different maturity dates, which allows policyholders to access their funds in a structured, phased manner. This strategy can help to minimize interest rate risk, provide a steady stream of income and ensure that policyholders have access to their funds when they need them.
To illustrate the benefits of a laddering strategy for FIA policies, consider the following case study:
Jane is a 55-year-old retiree who is looking for a way to generate a steady income stream in retirement. She is also interested in protecting her savings from market volatility, as she is worried about the potential for downturns in the stock market.
After meeting with a financial advisor, Jane decides to purchase a series of FIA policies with different maturity dates. She purchases a five-year FIA, a 10-year FIA and a 15-year FIA, which will mature at different points in time over the next 15 years. Each annuity provides a guaranteed minimum rate of return and the potential for growth based on the performance of a stock market index.
By laddering her FIA policies, Jane is able to access her funds in a phased manner, which helps to minimize interest rate risk. Over the next five years, the five-year FIA policy matures, and Jane is able to access the funds from that policy. She uses some of the funds to purchase a 10-year FIA policy, which will mature in 10 years, providing her with additional income in the future.
Over the next 10 years, Jane continues to ladder her FIA policies, as each policy matures and provides her with additional income. By the time Jane reaches age 75, all of her FIA policies have matured, and she has a steady stream of income to help support her in retirement.
By using a laddering strategy for her FIA policies, Jane is able to generate a steady income stream in retirement, protect her savings from market volatility and access her funds in a structured, phased manner. If everything were to go as planned, the laddering strategy, combined with the tax benefits of FIA policies, can potentially allow Jane to live a comfortable retirement, secure in the knowledge that her savings are protected and generating income for her.
In conclusion, the laddering strategy is a popular accumulation approach for fixed indexed annuity policies, as it provides policyholders with the potential for growth, a guaranteed minimum rate of return and a steady stream of income. Policyholders who are looking for a way to generate income in retirement, protect their savings from market volatility and access their funds in a phased manner may find that a laddering strategy for FIA policies is a suitable option. However, as with all investment products, policyholders should carefully consider their personal financial situation and consult with a financial advisor before making any investment decisions. That’s where we come in.
To learn more, please give Sylvan Financial Advisors a call at (201) 282-5332.
Keep in mind, this article is for informational purposes only and not to be construed as financial or investing advice, nor is it a replacement for real-life advice based on your unique situation. Investing and retirement account rules are constantly changing, and it is recommended that you work with your financial professional to assess and invest based on your unique situation.