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Fixed and Variable Annuities Working TogetherDuring the past year, about 25 percent of workers aged 45 and older have decided to postpone their retirement to help increase their future financial security.1One way to enhance your own financial future is by building a portfolio that may provide protection against loss of principal while taking advantage of the opportunity for potential stock market returns. Using fixed and variable annuities together may help you build such a portfolio.2,3 With an immediate fixed annuity, in exchange for a lump-sum premium, an insurance company will pay an income for your lifetime or for a specified number of years. With a variable annuity, your principal can be invested in a variety of subaccounts, which can include securities such as stocks and bonds whose value fluctuates with the market. The amount of any income from a variable annuity will depend on the overall investment performance of the subaccounts you choose. As you can see in the example (see graph), splitting a sum between an immediate fixed annuity and a deferred variable annuity can offer the opportunity to receive current income while continuing to pursue potential growth. Here’s How It Can Work  In
this hypothetical example, half of the $500,000 sum was placed in an immediate
fixed annuity with a guaranteed 5 percent annual interest rate. The remainder
was placed in a variable annuity that has strong growth potential. The fixed
annuity would provide a $24,000 annual pre-tax income for 15 years, which could
be used to augment income from Social Security and other retirement plans.4By the time the fixed annuity is exhausted, the variable annuity account could potentially have grown to almost $600,000, assuming a hypothetical 6 percent average annual return. At this point, the account owner can consider purchasing another fixed annuity and possibly starting the process again. Having enough money to last throughout retirement is a common concern. Earning a guaranteed income while pursuing growth is one way to help ensure that your retirement assets last as long as you will need them. 1) 2003 Retirement Confidence Survey, Employee Benefit
Research Institute © 2003
Emerald Publications |
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