Equity Indexed Annuities
by Ellise Walsh

Not so long ago, planning for retirement was not that complicated. You graduated from high school or college, took a job with the local factory or office and worked there for 30 years. At age 65 you got your gold watch and your monthly pension check.

It is sometimes hard for workers entering the job world today to imagine that things were ever so straightforward. A newly minted graduate today is likely to work for at least 4 or 5 companies during their career. They may even change careers 2 or 3 times in those 30 years. This obviously complicates retirement planning. Gone are the days of the monthly pension check, guaranteed for life. A few companies still offer these types of plans, but they are growing fewer with every passing year.

In place of the traditional defined benefit pension plan is the employer sponsored retirement plan. These plans are known as 401(k) plans for private companies and 403(b) plans for public ones. These types of plans allow the employee to put away money tax free and have it accumulate and grow over time. The employer will often match a percentage of the employee contributions. Besides the tax advantages, it is helpful to many people to have the money come right off the paycheck – if they don’t see it they don’t miss it as much as if they had to write a check every month.

It is important to have investments besides the 401(k) plan. Equity indexed annuities are a popular way to save for retirement and build up a good nest egg. There are many different types of annuity programs, equity indexed annuities are but one type of annuity. In addition to equity indexed annuities, there are fixed rate annuities that invest in government or other types of bonds or mutual funds.

Equity indexed annuities typically invest in the stock market and/or mutual funds. As a result, their returns will fluctuate from year to year, along with the general direction of the stock market. If this fluctuation worries you, it is important to remember that over the long term the stock market has had a much higher return that any other type of investment.

When considering equity indexed annuities, it is important to remember that any investment that uses the stock market should be a long-term investment. If you have 20 or 30 years before retirement, an equity indexed annuity can be an excellent choice for your retirement needs. Your money will have 2 or 3 decades to grow and prosper along with the economy, and you will likely end up with a much larger nest egg than if you had invested in “safer” investments.

If however, you are only a few years from needing the money in your annuity, you may want to cut back on the level of risk and select an annuity program that invests in fixed rate vehicles. If you are only a few years from retirement, you will be less able to recover from any short term setbacks suffered by the stock market. Anytime you are in the annuity market, it is important to tailor the annuity investment to your individual needs.

Saving for your own retirement is your responsibility as a worker. The sooner you start this planning, the better off you will be when you are finally able to stop working. Using equity indexed annuities can be an excellent strategy for long term retirement planning.

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