One of the biggest challenges faced by retirees, or people who have just entered retirement, is finding the best method for ensuring that the money they’ve worked so hard to save doesn’t run out, or isn’t lost to market declines. 

The closer you are retiring, the less time you have to work and earn additional money to invest and grow your retirement nest egg.

Therefore, it’s essential to understand the different options available to both maximize your retirement savings and shield that money from loss.

One such option that has grown significantly in popularity over the past decade is an insurance product called an equity indexed annuity. In some circles, it’s referred to as a fixed indexed annuity, or just an index annuity.

Index annuities function similarly to ordinary annuities, while also providing benefits akin to a traditional brokerage account. Of course, there are a number of exceptions related to the fact that it is, indeed, an insurance product and not a typical investment account.

Admittedly, index annuities — like any investment products, actually — are not for everybody, nor are these products suitable for the entirety of your retirement savings, but rather an appropriate portion based on your unique individual time horizon and risk tolerance.

Understanding how index annuities work is essential to making the best decision regarding your retirement investments, as well as playing a key fundamental role in securing the safety and security of your financial future.

This article reviews some of the key features of index annuities, as well as the pros and cons of these products (we previously reviewed the pros and cons of annuities versus dividend stocks).

The goal here is that, by providing you with a better understanding of how these insurance-related investments work, you will be better informed and educated if, or when, it comes time to decide if an index annuity is suitable for you.

Potential Challenges Faced by Retirees

There are a number of potential challenges faced by retirees, or those who will soon be entering retirement.

These challenges are not unique to any one individual investor, but rather shared by all regardless of status, occupation, demographic composition, geographic location, or financial capability.

One of the most common fears among retirees is the possibility that they will simply not have enough money.

An estimated 10,000 baby boomers will be retiring every day from now until the end of the next decade, and a significant percentage of those individuals possess inadequate savings to support their current lifestyles for the years following their retirement.

Going hand-in-hand with simply not having enough money to survive is the fear that retirees will outlive the money that they have saved.

According to LifeHealthPro, “people could routinely live past 100” in the foreseeable future. With advancements in modern medicine, living too long is indeed another legitimate and valid concern.

Additionally, looking back on the performance of the stock market over the past fifty or so years and considering the number of relatively notable market downturns, yet another valid concern from a large percentage of future retirees is a possibility that — even for those who have saved enough to support themselves — their money may still potentially be at risk from the next market decline.

This is called market risk, and it’s “the scenario in which you’ve amassed a healthy portfolio of stocks and bonds only to see it plummet in value because of a market crash or other disruption to the global financial system.”

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