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Financial advisors regularly emphasize the importance of saving for retirement, no matter what stage of life or career a person may be in. However, as someone gets closer to retirement age, priorities begin to shift and different considerations are made. Specifically, the 10 to 15 years leading into retirement are an important time to begin safeguarding investments while they continue receiving returns.

People at this life stage, generally referred to as pre-retirees, could benefit from adding a fixed annuity to their retirement portfolio as a safe money product option. An annuity is an insurance contract that is created when an individual makes a payment (or a series of payments) called premium(s). In return the insurer offers crediting options (or interest) for accumulation or periodic payments back to the individual. Fixed index annuities, which track market indexes like the S&P 500, have several features that can benefit pre-retirees, including:

  1. Protection from market volatility: Those early in their career are often advised to take on a certain level of risk with their retirement portfolio, given the length of time they have to weather any potential gains or losses. As retirement approaches however, more people become risk-averse and instead want to ensure that the money they have spent their lives saving, is there when they need it. Most fixed index annuities have guaranteed interest rates, meaning they grow steadily for the length of the annuity and generally keep up with, or sometimes surpass, inflation. Beyond that, all fixed annuities guarantee no loss of the principal, meaning regardless of what is happening in the market, policy owners will not lose their initial investment. These features allow fixed index annuities to participate in market gains while being protected from downturns. For these reasons fixed index annuities are considered a safe money option, and especially beneficial for anyone who wants to protect their money against large market fluctuations.
  2. Tax-deferred status: Many people planning for retirement likely have a financial plan in place to cover some of life's bigger expenses, such as housing or travel. However, people may not have considered other costs that could arise, especially later in life, such as increased medical or long-term care needs. Fixed annuities grow in a tax-deferred manner, serving as a vehicle for saving towards those future contingencies. With tax-deferred status, there are no initial taxes paid on the premium that establishes the annuity. Additionally, deferred taxes help accelerate the savings growth through triple-compounding, which includes earning interest on the principal, interest on the interest and interest on what would have been paid to taxes. Once a policy owner hits retirement age and starts taking distributions from the annuity, they are typically in a lower tax bracket, which means less money is lost to taxes.
  3. Guaranteed income: For those people considering a fixed annuity, another benefit to consider for the future is the option of regular income payments. Fixed annuities can provide a protected and predictable stream of payments to owners. These payments could potentially be turned on at any time and last for the lifetime of the policy owner. Additionally, options are available to pass income payments to a spouse or other beneficiary, including a trust, ensuring protection for family as well.

Related: Survey: Americans worried about outliving their retirement savings

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