Protecting Your Nest Egg With

Fixed Indexed Annuities

Tax-Deferred and Never Negative, Look to FIAs for

a Less Stressful, More Secure Retirement

May 30, 2024 - If you follow our firm, you already know that 2023 was a banner year for the structured settlements industry. Interest rates are hovering in a range not seen in nearly two decades and still show no signs of receding considering 2024 is off to an EVEN BETTER start than last year.

What you may NOT realize, however, is that the retirement annuity business, specifically the fixed indexed annuity (FIA) market, also had its best year ever last year with annuity purchases totaling $95.9 billion, up 20% over 2022. (NOTE: Total annuity purchases in 2023 totaled $385.4 billion!)

So, if you are nearing or already in retirement, this newsletter is for you. This one is chock full of timely links all designed to help you make an informed decision about your future. You may be in what they call the Retirement Risk Zone and not even know it. Read on.

So, What's Driving This FIA Trend?

There are several factors driving this FIA trend:

  • Interest rates - The last time annuity interest rates were at these levels was 2007, just before The Great Recession. For the past month, the benchmark 10-Year Treasury has been yielding in the 4.5% range. (NOTE: Structured settlement yields are typically about 50 basis points better than Treasury rates at any given time.)

  • Changing Demographics - A record 11,200 Americans will turn 65 EVERY DAY between 2024 and 2027 according to the Alliance for Lifetime Income. What's your zone?

  • Loss of Pensions - Once upon a time, retirees who dedicated their working lives to a company were promised and could expect guaranteed lifetime income once their careers ended. As those defined benefit plans (DBs) gave way to defined contribution (DC) plans like 401(k)s, traditional pensions were phased out leaving employees to "go it alone" when they retired.

  • The Social Security Gap - People are sometimes surprised to learn that Social Security was only ever intended to provide a modest level of financial support. Depending on one's earnings history, most retirees can expect Social Security to replace anywhere from 28% to 78.9% of their pre-retirement income. Very few people feel that Social Security alone is enough to live comfortably off of. To maintain one's standard of living, additional income is often needed.

Not so fun fact: Twenty-eight developed nations offer Social Security

benefits which are more generous than the United States.

  • Flight to Safety - If you lose money in the stock market during your 20s, 30s, or even 40s and 50s, chances are you have a long enough time horizon to weather that particular storm before you'll need to access your funds. History suggests you'll probably be OK, possibly even thrive if you don't panic sell.

More on Flight to Safety

It's this last one, Flight to Safety, which is especially important to understand because of how much everything changes once you are close to or already in retirement. Why? Because you eventually need to start making systematic withdrawals from your retirement account, in some cases whether you want to or not thanks to Required Minimum Distribution (RMD) rules.

A major market drop during these years can destroy everything you've saved your whole life for due to the dual threats of Sequence of Returns Risk and one's ever-shortening life expectancy. Your time horizon to make up market losses lessens with each passing year.

What if the Sky Falls?

According to real estate investor Grant Cardone, there have been four times in the last 100 years where the yield curve has been inverted for more than 500 days: 1929, 1974, 2009, and NOW. Those first three dates preceded the Great Depression, the Stagflation/Oil Embargo Recession, and the Great Recession all of which precipitated an accompanying 50% or more market decline.

What if he's right and it's about to happen again?

Remember, A 50% market drop requires a 100% return just to break even!

But, you say, this is an author with an agenda who's simply trying to make the case for real estate. Fair enough. I hope he's wrong. But it's worth acknowledging that markets go up and markets go down. If you're lucky, you get off on the right floor. Unfortunately, even the so-called experts never really know what the market will do or when.

Interesting sidebar: Think real estate isn't a risky investment? Tell

that to the guy who paid $137 million for a building three

years ago that just sold at auction this month for $12.3 million.

Looking through a rear-view mirror, however, can be quite instructive. For instance, take a look at this graph of the S&P 500 index since 1928.

S&P 500 Historical Annual Returns

Although investors made a dizzying 37.88% in 1928 by investing in the S&P 500, they experienced negative returns in nine out of the following 14 years translating into a 15-year average annual return of only 0.48%. Not pretty.

Is there an alternative? Yes. There are several different strategies you can employ to reduce your risk of losses during this critical period but one your financial advisor may be reluctant to discuss with you.

"Tell Me About the Rabbits, George"

Retirement income security need not be some distant, abstract concept never to be realized as was the case with poor Lennie and the rabbits in John Steinbeck's classic Depression era novella "Of Mice and Men." Thanks to fixed, indexed annuities, there is a better way to increase your chances of arriving at a retirement happy place.

Because of the unique interest rate climate today and the improvements FIAs have made in recent years, now is an excellent time to look into these tax-deferred retirement savings vehicles which continue to grow in popularity.

Case Study

This past week I helped someone I will call (for compliance purposes) a hypothetical client in his 60s interested in rolling over a portion of his retirement portfolio into a hypothetical fixed indexed ACCUMULATION ONLY annuity that is guaranteed to earn between zero and 11.25% this coming year. Here's how:

If the market index selected (he chose the S&P 500) is negative during the one-year point-to-point term, his account will be credited with 0%. He literally can't lose money.

If the index exceeds 11.25%, his account will be credited with 11.25%.

If the market index falls between 0% and 11.25%, his account will be credited with that amount.

Every one-year anniversary, strategies can be reevaluated and adjusted using rates then in effect which historically don't change much. (They never go below 0%, however.)

Because there are NO FEES and NO RIDER CHARGES for this accumulation option, tracking the growth is easy. What you see is what you get, and it will always be positive.

Although free withdrawals of up to 10% every year are permitted, there is no requirement for him to withdraw any money (absent RMDs in which case the RMD amount must be taken) making this an exceptional method of preserving retirement funds.

Because there is a surrender charge on amounts taken in excess of the free withdrawals, it's important to only use funds that one has no intention of accessing (except for RMDs) until past the surrender period of usually seven to ten years.

To the extent there is a drawback (in addition to its short-term lack of liquidity), it's that purchasers potentially miss out on returns they could make in years when the market exceeds 11.25% (or whatever the new cap is). But for most people, exchanging volatility for certainty is an acceptable trade off.

Remember that 0.48% 15-year annual average return I told you about earlier? Had this option been available in 1928 and the cap remained constant, the investor would have averaged 4.02% instead of 0.48%, more than EIGHT TIMES the actual return.

In Conclusion

If you are seeking diversity, safety, and reasonable returns while eliminating your downside market risk, there hasn't been a better time to consider fixed indexed annuities in years. Not for all of your money, of course, but when the nation's top retirement researcher, Dr. Wade Pfau, talks about FIAs being an attractive alternative to a taxable bond portfolio, you know it's worth looking into.

And finally, how much do I personally believe in these? While I am fiercely protective of my clients' privacy, let's just say the hypothetical client referenced in this newsletter bears a striking resemblance to Yours Truly.

And you know I practice what I preach!

Thank you for the opportunity to be of service and best wishes to you for continued success in your personal and professional lives. Call anytime I can help.

Dan Finn, CPCU, MSSC®, RICP®

Master's Certified Structured Settlement Consultant®

Retirement Income Certified Professional®

"Building lifetime client relationships!" | 949.999.3322 |

CA Insurance License: 0A96173

Click HERE for a FREE copy of the major motion picture: "The Baby Boomer Dilemma: "An Exposé of America's Retirement Experiment."

DISCLAIMER: We present this newsletter for educational purposes only using material freely available in the public domain and it should not be construed as containing tax, accounting, investing, or legal advice. Any guarantees referenced subject to the claims paying ability of the issuing carrier. Any discussion about specific or implied life company quotes, rates, etc. should be considered hypothetical as all are subject to change and may vary by state of issuance. All rights reserved.

S&P graph courtesy of

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