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Volatility and anxiety seem to walk hand in hand. Because of uncertainty, many retirees and pre-retirees are more concerned about their financial future than since the Great Depression. The question is where and how do Americans save, and how are their savings affected by volatility. Where do they deposit or invest their savings?
On top of those concerns is COVID-19, which has become the great catalyst to the unknown volatility we all face. 2020 has been a changing point for many people; the relentless attack from the virus combined with the uncertainty has created a mammoth situation of anxiety and concern.
In Wells Fargo’s Annual Retirement Survey, the real impact of COVID-19 has begun to emerge. How much is needed to be saved for retirement? Whatever that personal number is, 39% of Millennials do not think they can save enough money, 38% for Gen X, and 31% for Baby Boomers. The negativity of the responses puts in play the need for guarantees and anything to offset volatility’s anxiety. The economic downturn has shaken the financial security of those who COVID-19 has impacted.
Everything is not entirely bleak; there are numerous positives such as a still bullish stock market and one shining star? Fixed Indexed Annuities, the insurance product that combines safety and long-term guaranteed income. A FIA removed volatility from the equation and replaced it by adjusting the limit of future growth. This tradeoff has made FIA the newest darling of the financial planning world. Gain without exposure to market risk is a dream come true for some.
Some of the benefits can provide a solid base for projecting retirement income and a retirement timeline.
FIAs can earn annual interest credits based on the performance of the selected indices. The yearly gain is then added to the base of any deposit and removed from market risk exposure. That creates a huge advantage and a positive outlook for those in retirement and those close to it.
A FIA can be a more robust alternative to selecting bonds: Bonds thrive in a downside interest market. The issue with bonds is not their guarantees but their exposure to volatility in calculating their value in the secondary market when general interest rates decline or increase. Unless a bond is owned for a specific reason, the change in interest rates can have a negative (and positive) effect on the bond’s value. With interest rates low, the value of an existing bond is stronger than it would be if interest rates were to rise. The all-time low interest rates we now have can dramatically change a bond’s value when interest rates increase.
The secure portion of any portfolio is better served with annuities than anything else currently available to investors.
COVID-19 has been a game-changer, but only because it brought to the forefront what has always been there: volatility. If guaranteed income and freedom of worry are your goals, then consider what so many have discovered.
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