[Narrator] Question: How can I take some pressure off my retirement portfolio? Allianz Answers.
Does the prospect of saving for retirement seem more daunting than ever? You may be concerned with market losses, the risk of outliving your money, and inflation. If you're trying to preserve your portfolio in an era of low rates and increased volatility, there is also the question of how you'll generate predictable, sustainable, and potentially increasing income, and that's only half it.
Compared to previous generations of retirees, your retirement strategy will need to rely more heavily on your personal assets to achieve your objectives. It all adds up to a lot of pressure on your portfolio.
You may be thinking: Sure there are risks, but how significant are they?
Consider this: Too much pressure on your portfolio can lead to deflating it and running out of money sooner than you expected. So much for living comfortably in retirement.
The difference between a more secure future and a more uncertain one could be the success of your retirement income strategy. Our hypothetical friends, Owen and Clara, are here to show us why. They're the same age, they're each starting with $750,000 in savings, and both of them want to generate $40,000 in annual income in retirement in five years with no more than a 4% withdrawal rate.
While Owen is approaching retirement with his retirement account only, Clara plans to combines her retirement account with a fixed index annuity or FIA.
Let's start with Owen. To reach his goal, he needs to grow his $750,000 savings to $1 million in five years. During those five years, Owen will continue to grow his retirement account without making additional contributions and without making withdrawals. That will require his savings to produce an average annual return of 5.92% net fees.
[On-screen disclosure] This hypothetical example is provided to show how this strategy may affect contract and portfolio values. It does not predict or project the actual performance of a specific product or its investment options. [End of on-screen disclosure]
What are the benefits of Owen's strategy? For starters, he has control, liquidity, and flexibility of his assets. And the potential opportunity for more gains compared to other strategies.
Except, his assets are unprotected and exposed to risks. Like market risk, sequence-of-returns risk and the possibility of outliving his money. That means his income isn't guaranteed to last his lifetime either and as another disadvantage, his account needs to return 5.92% net fees every year. So much for taking some pressure off his retirement portfolio.
Let's check into see how Clara is doing with your combined approach: A retirement account with an FIA.
In case you aren't familiar, an FIA is designed to meet long-term needs for retirement income. Some of the benefits include protection from market losses, tax deferral to help Clara grow her savings faster, the potential for credited interest based on positive changes in an external index, a death benefit to help her leave a legacy, and guaranteed income for life.
[On-screen disclosure] Guarantees are backed by the financial strength and claims-paying ability of the issuing company. [End of on-screen disclosure]
Now, compared to an approach that uses her retirement account only, an FIA may offer Clara less control, liquidity and flexibility of her assets for a period of time. This is because FIAs have a surrender charge and a market value adjustment if they are surrendered too early. Also, FIAs may have less growth potential than a sole retirement account has. Certain factors like caps, spreads and participation rates will limit the amount of indexed interest credited.
Clara's needs may change as time goes on which is why it's important to understand the balance between all available features with any annuity.
So Clara purchases an FIA with $225,000 and continues to invest her remaining $525,000 in her retirement account which is invested the same as Owen's retirement account and requires the same 4% withdrawal rate.
[On-screen disclosure] This hypothetical example is provided to show how this strategy may affect contract and portfolio values. It does not predict or project the actual performance of a specific product or its investment options. [End of on-screen disclosure]
After five years of waiting, her fixed index annuity would generate this much guaranteed lifetime income. As a result, she successfully reduces the pressure on her retirement account to generate the balance of income and only requires an average annual return of 2.34% net fees to achieve the same $40,000 in income as Owen. Keep in mind, this assumes no interest is credited to Clara's annuity during the five-year period. In fact, any FIA interest she earns would take even more pressure off her portfolio, reducing her required average annual return of 2.34%.
[On-screen disclosure] Based on an industry average guaranteed payout amount at age 70 (issued at age 65) of $7,300, per $100,000 of premium. This hypothetical example is provided to show how this strategy may affect contract and portfolio values. It does not predict or project the actual performance of a specific product or its investment options. [End of on-screen disclosure]
Clara's combined approach is more efficient than Owen's only retirement account because it requires a lower rate of return to generate the same amount of income and reduces the overall risk of outliving her money as well as withdrawal pressure.
Her approach also adds more flexibility and potential for income and growth because a portion of Clara's expenses are covered with guaranteed lifetime income. These factors will help take some pressure off her retirement portfolio in exchange for a level of certainty toward the lifestyle she hopes to sustain.
No one, not even Owen or Clara, can predict how long they'll live or how the market will affect their retirement. That's why it may be important to manage and protect a portion of your portfolio from longevity and market risk with a fixed index annuity to help you maintain the retirement lifestyle you want for as long as you live.
Ask your financial professional how a fixed index annuity could help take some pressure off of your retirement portfolio.
For complete information about fixed index annuities, ask your financial professional for an "Understanding fixed index annuities" brochure or a contract or a Statement of Understanding or illustration that outlines the risks, fees and expenses as well as other information.
[On-screen disclosures]
The purchase of an annuity is an important decision. Please consult your financial professional for a specific recommendation about purchasing this product.
Withdrawals or partial surrenders from your annuity may be subject to a surrender or withdrawal charge. Distributions are subject to ordinary income tax and, if taken before 59 ½, a 10% federal additional tax.
Guarantees are backed by the financial strength and claims-paying ability of the issuing company.
With the purchase of any additional-cost riders, values will be reduced by the cost of the rider. This pay 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 also will reduce values.
Products are issued by Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. www.allianzlife.com
Product and feature availability may vary by state and broker/dealer.
Brought to you by:
Allianz Life Insurance Company of North America
[End of on-screen disclosures]
