[Narrator] Question: Could my retirement income be hurt by persistent low interest rates? Allianz Answers.
First of all, low interest rates aren't necessarily bad. If you're buying a house, or car, or borrowing money, low interest rates are good news. However, if you're saving for retirement or in retirement, low interest rates can be a problem.
Here's why: If you're holding your assets in cash or putting your money into bonds, you may be thinking that keeping your money on the sidelines is a safer strategy than being in the market. But, is it really? Consider this: While your money may be at less risk due to market volatility, in a low interest rate environment it's vulnerable to a different kind of risk: The risk of not providing the kind of returns you may need to help you retire comfortably. That's because you're currently earning little or no interest on the assets you're holding in cash or cash equivalents like CDs or money market accounts. So, as inflation erodes the value of a dollar, the purchasing power of your money is actually going down.
On top of that, there may be taxes on what little interest you have earned. You may think you're protecting your money but it's actually losing value over time. As for bonds, yes, they're a more conservative investment strategy that people have traditionally relied on for generating income. However, bond values generally move in the opposite direction of interest rates, which means as interest rates start edging up, your bonds could decline in value. That's less money you can have for the very real possibilities of future inflation, higher taxes, and greater expenses like health care.
If you don't want to be in a volatile market and if holding cash or bonds isn't providing a level of returns you need, then what? Do you tighten your belt further so you can save more money? Do you postpone your retirement and keep working longer? Or, do you just keep your money on the sidelines and hope that interest rates go up or the markets calm down? How much time will slip away while you're putting off a decision?
But, instead of just waiting, maybe you'd like another alternative, one that can help address both low interest rate risks and market risks for a portion of your retirement income strategy. This approach uses a financial solution called an annuity. Annuities are insurance-based products designed to help meet long-term retirement needs. They can offer you a way to grow your assets tax deferred with a death benefit during the accumulation phase for your beneficiaries.
Please note that some annuities may have an additional-cost rider, and if it's a variable annuity, it's subject to investment risks including possible loss of principal. Investment returns and principal value will fluctuate with market conditions so that units upon distribution may be worth more or less than the original cost.
[On-screen disclosure] Some annuities may have an additional-cost rider to help fill your needs. [End of on-screen disclosure]
So an annuity can help you grow your assets, but even better, an annuity is able to provide you with income that's guaranteed to last as long as you live, no matter what the interest rate is or what the market does.
[On-screen disclosure] Guarantees are backed by the financial strength and claims-paying ability of the issuing company and do not apply to variable annuity subaccounts, which will fluctuate with market conditions. [End of on-screen disclosure]
So yes, you should consider the risk in low interest rates for your retirement savings, because traditional retirement income strategies that worked best in the past may no longer work as well in today's or future market environments. If you're just sitting on the sidelines putting off a decision, remember by doing nothing you're also making a decision. But is it the one that's really in your best interest?
Talk to your financial professional about how an annuity could be right for your retirement strategy. You can also learn more about annuities and their potential benefits at AllianzLife.com.
For complete information about fixed index annuities, ask your financial professional for a contract or Statement of Understanding or illustration that outlines the risks, fees, and expenses, as well as other information.
For more complete information about Allianz variable annuities and variable investment options, call Allianz Life Financial Services LLC, member FINRA, at 800.624.0197 for a prospectus. The prospectuses contain details on investment objectives, risks, fees, and expenses, as well as other information about the variable annuity and variable investment options which you should carefully consider. Please read the prospectuses thoroughly before sending money.
This content is general information for educational purposes, and is not intended to constitute fiduciary advice. Please consult your financial professional for a specific recommendation about purchasing this product.
Annuities are designed to meet long-term needs for retirement income. They provide tax-deferred growth potential, the reassurance of a death benefit for beneficiaries during the accumulation phase, and a guaranteed stream of income at retirement.
Withdrawals or partial surrenders from your annuity may be subject to a surrender or withdrawal charge. Distributions are also subject to ordinary income tax and, if taken before 59½, a 10% federal additional tax may apply.
Guarantees are backed by the financial strength and claims-paying ability of the issuing company and do not apply to variable annuity subaccounts, which will fluctuate with market conditions.
With the purchase of any additional-cost riders, values will be reduced by the cost of the rider. This may result in a loss of principal and interest (or gains) in any year in which the contract does not earn interest or earns interest in an amount less than the rider charge. Certain product fees and charges will also reduce values.
Products are issued by Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. In New York, products are issued by Allianz Life Insurance Company of New York, 1633 Broadway, 42nd Floor, New York, NY 10019-7585. Variable products are distributed by their affiliate, Allianz Life Financial Services, LLC, member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297.
Only Allianz Life Insurance Company of New York is authorized to offer annuities and life insurance in the state of New York.
Product and feature availability may vary by state and broker/dealer.
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