Fixed Index Annuities

Economic Experts Cite How Fixed Index Annuities Can Help You Save Less for Retirement and Still Achieve Your Income Goals

Index Annuities
March 24, 2025•4 min read
Fixed Index Annuities

Recent studies have shown that a staggering 55% of Americans feel they're behind on their retirement savings. This widespread concern about having enough money for retirement is not unfounded, given increasing life expectancies and the decline of traditional pension plans. However, there's a powerful financial tool that could potentially allow you to save significantly less for retirement while still achieving your income goals: the fixed index annuity (FIA).

 

Understanding Fixed Index Annuities

 

Fixed index annuities are insurance products that offer the potential for growth based on market index performance, while also providing principal protection from market downturns. As Dr. Wade Pfau, Professor of Retirement Income at The American College, explains, "Fixed index annuities can serve an important role in a retirement income plan by providing upside potential with downside protection" (Pfau, 2021).

 

The Power of Guaranteed Income

 

One of the most compelling features of FIAs is their ability to provide guaranteed lifetime income. This is crucial because, as retirement expert Michael Finke notes, "Guaranteed income in retirement has been shown to have a positive impact on retiree well-being" (Finke, 2018). By converting a portion of your savings into a guaranteed income stream, you can potentially reduce the total amount you need to save for retirement.

Saving Less with FIAs

 

Research suggests that using a fixed index annuity as part of your retirement strategy could allow you to save significantly less than you would need with a traditional investment portfolio. A study by economists David Babbel and Craig Merrill found that annuities can provide the same level of retirement income as a traditional stock and bond portfolio, but with 25-40% less capital (Babbel & Merrill, 2007).

 

This efficiency is due to several factors:

 

1. Mortality credits: Annuities pool risk among many individuals, allowing insurance companies to provide higher payouts than individuals could achieve on their own.

 

2. Principal protection: The downside protection offered by FIAs means you don't need as large a cushion to weather market volatility.

 

3. Guaranteed income: Knowing you have a guaranteed income stream can allow you to invest the rest of your portfolio more aggressively.

 

Real-World Impact

 

Consider this example: A 65-year-old retiree needs $50,000 in annual income, with $20,000 coming from Social Security. Using the traditional 4% withdrawal rule, they would need $750,000 in savings to generate the additional $30,000 per year. However, by using a fixed index annuity for half of their needed income, they might only need to save $375,000 - 50% less than with a traditional approach.

 

Economist Moshe Milevsky supports this concept, stating, "Annuities are one of the few financial products that can help retirees spend more than they otherwise would while simultaneously reducing the odds they'll run out of money" (Milevsky, 2013).

 

Considerations and Caveats

 

While FIAs offer significant benefits, they're not a one-size-fits-all solution. It's important to consider factors such as:

 

- Liquidity needs: FIAs typically have surrender charges for early withdrawals.

- Inflation protection: Some FIAs offer increasing income options, but many of them do this at a cost. There are some that do NOT charge extra for this. Make sure you know which ones these are.

- Creditworthiness of the insurer: The guarantees are only as strong as the company backing them, so reviewing their creditworthiness is vital.

 

Conclusion

 

For the 55% of Americans worried about and behind on their retirement savings, fixed index annuities offer a potential solution. By providing guaranteed income and downside protection, FIAs can allow you to save significantly less while still achieving your retirement income goals. As with any financial decision, it's crucial to consult with a qualified financial professional to determine if an FIA is right for your specific situation.

 

Remember, retirement planning isn't just about accumulating a large nest egg - it's about converting that nest egg into a reliable, sustainable income stream that will last throughout your retirement years. Fixed index annuities can be a powerful tool in achieving that goal, potentially allowing you to save less and worry less about your financial future.

If you would like to learn more, click the button below to discover if this might be right for you.

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Citations:

[1] https://www.athene.com/producer/insights/indexed-annuities-versus-mutual-funds.html

[2] https://www.symetra.com/help-center/resources-and-articles/saving-for-retirement/unlock-savings-stability-fixed-indexed-annuities-as-savvy-retirement-tool/

[3] https://www.annuitywatchusa.com/fixed-index-annuities/

[4] https://www.bankrate.com/retirement/fixed-index-annuities/

[5] https://www.bankrate.com/retirement/retirement-savings-survey/ 


With 30 years experience, Sean Ruehl, started his own firm, Triangle Financial Strategies, in 2018 with his wife. Sean brings a wealth of experience and a deep knowledge of financial strategies to his clients. ​ Prior to starting his firm, Sean founded the Wealth Management division for BB&T bank in the Durham/Chapel Hill markets, where he was a top performer. After banking, he transitioned to independent consulting in 2009, where he focused on fiduciary consulting for 401k plan participants. ​ Sean's journey into financial services was inspired by his desire to understand and master money management, a skill his parents urged him to acquire in addition to their strong ethics and morals. He is driven by a passion for working hard and connecting with people, aiming to provide solutions using insurance products that help his clients feel understood and confident in their financial decisions. Sean finds the most rewarding aspect of his job to be the moment when clients express relief and gratitude for the solutions he provides, helping them avoid needless risk and a lower standard of living without his guidance. His goal is to empower clients with the knowledge and confidence to help secure their financial future. ​ Sean holds a B.A. in English, which he credits for enhancing his communication skills with clients. A Certified Financial Planner®(CFP) since 2000, Sean is bound by a fiduciary standard and is committed to sincerity and honesty in his practice. His approach sets him apart, especially in areas such as college planning, where he can often recommend solutions other than traditional financial products. Working with a diverse mix of clientele, Sean applies fundamental principles tailored to each client's unique needs. ​ Married to his wife Ally for 20 years, Sean enjoys outdoor activities like sailing, skiing, and camping, and is actively involved in his church and community. He is also a member of Forward Financial Group, a financial ministry, where helps families become debt-free and build wealth.

Sean Ruehl

With 30 years experience, Sean Ruehl, started his own firm, Triangle Financial Strategies, in 2018 with his wife. Sean brings a wealth of experience and a deep knowledge of financial strategies to his clients. ​ Prior to starting his firm, Sean founded the Wealth Management division for BB&T bank in the Durham/Chapel Hill markets, where he was a top performer. After banking, he transitioned to independent consulting in 2009, where he focused on fiduciary consulting for 401k plan participants. ​ Sean's journey into financial services was inspired by his desire to understand and master money management, a skill his parents urged him to acquire in addition to their strong ethics and morals. He is driven by a passion for working hard and connecting with people, aiming to provide solutions using insurance products that help his clients feel understood and confident in their financial decisions. Sean finds the most rewarding aspect of his job to be the moment when clients express relief and gratitude for the solutions he provides, helping them avoid needless risk and a lower standard of living without his guidance. His goal is to empower clients with the knowledge and confidence to help secure their financial future. ​ Sean holds a B.A. in English, which he credits for enhancing his communication skills with clients. A Certified Financial Planner®(CFP) since 2000, Sean is bound by a fiduciary standard and is committed to sincerity and honesty in his practice. His approach sets him apart, especially in areas such as college planning, where he can often recommend solutions other than traditional financial products. Working with a diverse mix of clientele, Sean applies fundamental principles tailored to each client's unique needs. ​ Married to his wife Ally for 20 years, Sean enjoys outdoor activities like sailing, skiing, and camping, and is actively involved in his church and community. He is also a member of Forward Financial Group, a financial ministry, where helps families become debt-free and build wealth.

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