“In all my 55 years on Wall Street, before I retired to do something vastly more important, I was never able to say when the market would go up or down. Nor was I able to find anybody on Earth whose opinion I would value on the subject of when it would go up and down.”
Sir John Templeton
Protect your retirement years from the predictable and the unpredictable
In 1918, Andrew Carnegie created the Teachers Insurance and Annuity Association of America (TIAA), a fully funded system of pensions. The financial services company was founded with a $1 million endowment from the Carnegie Foundation. It is a for-profit financial institution that provides pension and investment services mainly for teachers and their families. According to its website today it has 1.48 Trillion in assets and 4,700,000 customers.
If it is good enough for the Educators of America then maybe we should re-educate ourselves to change the perception of a grossly misunderstood product in the financial services industry:
Annuity
"Someone's sitting in the shade today because someone planted a tree a long time ago"
Warren Buffett
Registered Index-Linked Annuity
- Market-Linked Growth Potential: RILAs credit interest based on the performance of a selected market index (like the S&P 500®) over a specific term (e.g., 1, 3, or 6 years). The money is not directly invested in the market, but tracks the index's performance.
- Downside Protection: A core feature is a built-in mechanism to limit losses. This is typically implemented via:Buffer: The insurance company absorbs the initial percentage of the index's loss (e.g., the first 10% or 20%). The contract owner only incurs losses that exceed the buffer.
- Floor: This sets the maximum percentage loss the contract owner is willing to accept (e.g., a maximum loss of 10%).
- Limited Upside Potential: In exchange for downside protection, the potential for market gains is limited by a cap rate (maximum percentage gain) or a participation rate (a percentage of the total index gain credited to the account).
- Tax-Deferred Growth: Earnings accumulate on a tax-deferred basis, meaning you don't pay taxes until you begin making withdrawals, potentially allowing for greater compounding over time.
- Balance of Risk and Reward: RILAs are suitable for investors seeking a middle ground, offering more growth potential than a fixed annuity while providing more security than a variable annuity.
- Protection Against Volatility: The buffer or floor features can help weather significant market downturns, providing a sense of security as retirement approaches.
- Customization: Investors can often choose from various index options, protection levels, and term lengths to align the annuity with their specific risk tolerance and financial goals.
- Death Benefit: RILAs typically include a death benefit (often a return of premium feature) to protect beneficiaries, which can sometimes be enhanced with an optional rider for a fee.
Download Our Don't Panic Ebook!
With everything going on in the world, keeping perspective is essential as life and markets change. This whitepaper takes a look at how having a better understanding of the business cycle can help you stay focused during periods of economic transition.
Registered Linked Index Annuities (RILA) are not suitable for all investors. RILA s permit investors to participate in only a stated percentage of an increase in an index (participation rate) and may impose a maximum annual account value percentage increase. RILAs typically do not allow for participation in dividends accumulated on the securities represented by the index. Annuities are long-term, tax-deferred investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Withdrawals prior to 59 ½ may result in an IRS penalty, and surrender charges may apply. Guarantees are based on the claims-paying ability of the issuing insurance company.