Every investment involves some level of risk and annuities are no different. An annuity is an insurance contract used to provide a source of income during your retirement. Depending on how your contract is structured, you might fund it with a one-time lump sum or with scheduled contributions over time.
Fixed versus Variable
If you are concerned about risk when deciding whether an annuity is the right investment vehicle for you, a fixed annuity can be designed in such a way that risk is minimized by sticking with conservative, fixed interest rate returns. Going with a variable annuity where your contributions are invested in bond or equity markets increases the risk that your portfolio will suffer losses. Remember, when it comes to investing the higher the return, the greater the risk.
Consider the risks associated with the following types of annuities:
The Risk of Insolvency
Since annuities aren’t FDIC-insured, if the insurance company that has issued the annuity becomes insolvent, there is a possibility of loss. States usually provide funds to prevent annuity losses. However, if the amount invested in an annuity exceeds the state’s coverage amount a loss could occur if the insurer goes bankrupt.
The bottom line? You don’t want to risk your retirement savings, and you do want a reliable, steady source of retirement income. Contact us for a consultation, where we can weigh the potential risks and returns of various options and come up with a solution tailored to your retirement goals.
This post was originally published on the IQ Wealth Management blog. Original post is here: https://www.iqwealthmanagement.com/2017/05/18/can-annuities-lose-money/
Steve Jurich is a Certified Income Specialist™, president of IQ Wealth Management, and manager of IQ Wealth Advisory, LLC, a Registered Investment Adviser. Steve is a popular business radio commentator and author with nearly two decades of financial experience helping clients achieve their retirement goals. His comments have appeared in press releases published on Bloomberg, TheStreet.com, MarketWatch and CNBC.com.