How Are Annuities Impacted in a Recession?

In times of recession, it is understandable that we would start looking for ways to cut expenses and conserve our assets. Especially as we plan for our retirement. The hard truth is that no one can predict what the future holds, and any investment could potentially be subject to risk depending on what happens in our world (recession, war, etc.) All we can do is look at how products are designed, their general purpose and historical performance to make decisions as we move forward.

Fixed annuities are designed to provide a specific rate of return over a specific contract term. The rate of return does not increase or decrease over the course of the term and; therefore, should not be impacted if the market declines. 

Fixed indexed annuities are designed to protect your principal while offering some growth. They are designed to be a more conservative investment than investing directly in the stock market. In a fixed indexed annuity, you generally earn less than the market in periods of market growth, but they are also designed not to lose principal when the stock market is in decline. Because they are equity indexed, some people incorrectly compare them to the stock market when in reality these are positioned best for the fixed income portion of your portfolio. They lower overall risk of your portfolio because there is no downside risk.

Variable annuities are designed to fluctuate with the market. You have the opportunity to earn a higher rate of return than you would in a fixed annuity or fixed indexed annuity; however, your principal is at risk of being reduced if the market declines. There are also  additional annual fees that could reduce your principal even more in a period of market decline.

Annuities are contracts with term lengths. Accessing your principal before your term is up can result in a surrender charge; however, many of the companies do offer access to 10% annual penalty-free withdrawals.

So, fixed annuities or fixed indexed annuities are generally designed to have less downside risk than the stock market which could bolster your retirement nest egg in a long period of steady market decline.  It is impossible to say whether they are a good fit for you without knowing the full scope of your specific financial situation. When are you looking to retire? Do you have a pension or plan in place for retirement income? When would you need access to the money invested in the annuity? These are some of the questions you should consider asking before you make an investment of any kind. If you would like more information or guidance on the different types of annuities and other investment products, then don’t hesitate to reach out. We can help walk you through your options!

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Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. Insurance products are offered through the insurance business Bradshaw & Weil, Inc. Insurance & Financial Planning. Bradshaw & Weil Wealth Management, LLC DBA Bradshaw & Weil Insurance & Financial Planning is an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. AEWM does not offer insurance products. The insurance products offered by Bradshaw & Weil, Inc. Insurance & Financial Planning are not subject to Investment Advisor requirements. AEWM and Bradshaw & Weil, Inc. Insurance & Financial Planning are not affiliated companies.

Guarantees and protections provided by insurance products, including annuities, are backed by the financial strength and claims-paying ability of the issuing insurance carrier. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions.

Investing involves risk, including the potential loss of principal. Any references to safety, security generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 1550539 – 11/22