Check out the spreadsheets below - they're comparing how the performance of a hypothetical fund based solely on the annual returns of the S&P 500 Index (the columns with the blue heading) compared to the performance of a Fixed Index Annuity over the recent 20 year period of 01/01/1999 - 12/31/2018.
The first spreadsheet compares the performance of the stock fund and the annuity without any withdrawals, and the 2nd spreadsheet compares their performance while withdrawing the classic 4% per year.
In both spreadsheets, although the stock fund received 100% of the gains of the S&P 500 each year the index went higher, it also received 100% of the losses during those years when the stock market declined or crashed (note the yellow highlighted cells).
As you can see, in both spreadsheets the annuity received 50% of the gains of the market each year, but received 0.0% of the losses.
Fixed Index Annuities (FIAs) automatically "lock in" gains when the stock market moves higher, and then never lose any money when the stock market declines, so even with only "50% of the gains," the FIA ends up with 28% more money after 20 years than the stock market fund...
As you can see, the cumulative withdrawals were 33% greater for the Fixed Index Annuity ($253,437 vs $190,354) and the final Year End balance for the Fixed Index Annuity was 31.6% greater than the Year End balance for the Index Fund ($349,680 vs $265,719).
You and I both know that looking back into history doesn't predict the future.
My point in presenting these spreadsheets is simple - I just want to make sure you know that you actually do have a choice between a couple of plans:
Plan "A" is to keep your retirement savings fully vested in the stock market, where absolutely nothing is guaranteed - yes, your retirement account will get 100% of the upside, and it will also continue to get 100% of the downside. And, if you live long enough and the stock market doesn't behave itself, there's a very real possibility you could run out of money.
Plan "B" would be to ponder and consider what an annuity could do for you - a financial product that's been around since Roman times, and may actually have some value for you to consider because of what it brings to the table - guarantees of no losses in the stock market and a guarantee that you and your spouse can receive a "paycheck for life" if that's what you want. Then, down the road, when you and your spouse pass on, the money in your account will go to your heirs outside of probate...
I forgot to mention one thing... some of you may be saying "yeah, Rick, this is all fine and dandy, but what about all the fees, huh??"
I'm so glad you asked - the two spreadsheets I've shown above illustrate a real, actual Fixed Index Annuity that's one of the top FIAs across America - it does indeed have a 50% participation rate, and the annual fees for it are exactly $0.00 per year.
.Last thing (I promise) - I've put together a "whiteboard video" that talks about the benefits of a "Plan B" retirement plan - you can check it out here: www.PlanBPlan.com
You and I may not know what the next 20 years will bring in the financial world, but you and I know, with 100% certainty, that "50% of the "up" and 0% of the "down" with an FIA will beat "100% of the "up" and 100% of the "down" every time.
Give me a call, send me a text or reply to this email if you have questions about any of this...