As Fortune 500 employees and retirees, it's never too early to start thinking about retirement planning, and a large part of the equation is post-retirement income. Securing ample and predictable retirement income is a challenge for many Americans. In fact, the clear majority of working-age people in this country have little to no retirement savings set aside. 45% of baby boomers have no retirement savings, and 1 out of 12 Americans believe they'll never get to retire at all.[6]
This is largely due to a lack of planning and insufficient contribution to independent and, in your case, Fortune 500-based retirement accounts. There are many options in the financial industry for securing retirement income, but the average person lacks the necessary understanding to make use of these solutions.
One such vehicle to generate retirement income is the annuity. Annuities come in many forms, each with different benefits and drawbacks. But if you choose the right annuity for your needs, it can provide a reliable income stream over a predetermined length of time for added security and a more comfortable lifestyle during your retirement from Fortune 500.
We believe that annuities can be a valuable part of Fortune 500 employees' and retirees' retirement investment plans. Sales of annuities are now at an all-time high. In the first quarter of 2022, total annuity sales hit $63.6 billion, a 4% increase from the first quarter of 2021.[7] The U.S. retirement market had $39.4 trillion in assets in the fourth quarter of 2021. Only $2.6 trillion, or 6.6% of the total, was held in annuity reserves.[8] Confusion around the various types of annuities has led to people buying annuity products that didn’t fit their needs and, therefore, provided them with little benefit. But, the value of an annuity depends on how it is structured and the specific contractual arrangement you have with the entity selling it to you.
If you’re not familiar with them, annuities can seem complex because they vary greatly. And if you don’t understand the details of the product, you could end up with something other than what you thought you were getting. Some may lock up your investment capital for a period of time that isn’t optimal for your overall Fortune 500 retirement strategy. With many annuities, you may be subject to unfavorable surrender penalties or early withdrawal fees. Others have high commissions or annual fees that can cannibalize some of the gains. And, sometimes, the underlying investments in an annuity just plain don’t perform well enough to provide the value you require.
However, some annuity structures are inherently safer and more stable than others. Since there are so many different annuity models with vastly different features and benefits, you need to know which type of annuity will be a fit for your specific purposes before buying in.
The best annuities have higher rates of return, low provider fees, low minimum investment amounts, and are backed by companies with long-established reputations for financial stability.
Annuities are typically sold by life insurance companies, investment firms, or independent agents and brokers. Put simply, an annuity is a financial vehicle that provides regular payouts to the owner for a specified length of time. The payout can be either immediate or deferred. An immediate annuity begins paying out shortly after the initial investment. But with a deferred annuity, the initial investment accrues interest over time. This is known as the accumulation phase. At a certain point in time, it begins paying out returns to the purchaser. This is the annuitization phase. The accumulation and annuitization periods differ depending on the contract governing the annuity. As a Fortune 500 employee, you should be aware of any early withdrawal fees and other penalties including yearly penalty-free withdrawal allowances, so you can plan for a certain amount of liquidity within your overall investment portfolio.
As an employee of Fortune 500, there are two major classifications of deferred annuities, fixed and variable. Fixed annuities pay out a guaranteed regular return. While a fixed annuity carries a lower level of risk than a variable annuity, you forego the additional growth that is typically associated with investments bearing greater risk, so your rate of return usually will be lower, as well. When you enter into a fixed annuity, it’s unlikely that you’ll get to determine which investments your money is put into; that is usually done by the insurance company or broker selling it to you. If you don’t have much of an appetite for risk and can afford less growth, a fixed annuity is probably a good option for you.
Variable annuities function quite differently. They typically offer the potential for greater growth.
However, Fortune 500 employees and retirees should keep in mind that you also risk losing money, including your principal. Variable annuities are tied to market-based products like stocks, mutual funds, precious metals, and other commodities that can fluctuate wildly in value. The benefit to variable annuities is that, when their underlying assets are performing well, you could reap significantly higher financial returns than with fixed annuities. But if the assets are underperforming, you could incur a loss. In some cases, you may even get to choose the underlying investments in a variable annuity. If you’re looking for a higher return, you can find it in a variable annuity. But if you are relatively risk-averse, this may not be the appropriate choice for your needs. It is also important to keep in mind that variable annuities typically have higher fees than other types of annuities, as well.
There is, however, another variation on the annuity which is a reliable middle ground that Fortune 500 employees and retirees should keep in mind – the fixed index annuity (FIA). In a sense, the FIA shifts much of the market risk to the company selling you the annuity, thereby affording you some protection. An FIA is, like a variable annuity, tied to the performance of a stock market index, but there is a floor of zero. This means that, if the underlying assets perform poorly, your principle isn’t at risk. This is a wise investment for those who are risk-averse but are still seeking decent capital growth over time. FIAs are typically structured so that you receive a prespecified percentage of the market gains from the underpinning investments. So, while the returns provided by FIAs are slightly more modest than that of variable annuities, they’re much safer because they provide protection in the event of a down market.
It’s important for Fortune 500 employees and retirees to note that none of what we’ve discussed above is carved in stone. We don't advocate for the same retirement investment strategy for all Fortune 500 employees and retirees. Whichever type of annuity you decide is right for you will always be governed by the specific contract between you and the company you buy it from, adding another level of complexity to these financial products. As an example, some arrangements allow for an income rider which assures a predetermined amount of regular income during the annuitization phase. Others may not. The contract may also lay out other payment options.
Some annuities pay out for a guaranteed period, meaning that any payments remaining once you pass away can be transferred to your beneficiaries. But some contracts specify lifetime payments which end when the annuity holder dies. If you end up living a long time after payouts begin, then you’re on the winning side of this contract. But if you live a shorter life, you and your beneficiaries may potentially lose out on a portion of your investment.
Some additional things that Fortune 500 employees and retirees should be aware of are commission percentages, surrender charges, annual fees, insurance charges and management fees, and early withdrawal fees.
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Your retirement from Fortune 500 is a time that you should be able to enjoy, and you should be able to do it while maintaining your ideal lifestyle. You’ve worked hard at companies like Fortune 500 your entire life to keep your head above water and to build a better, more secure life for your family. But, like most Americans, you may not have enough savings to do the things you couldn’t do previously, because you were tending to all the responsibilities that come with modern life. That is why annuities, particularly FIAs, are a logical and beneficial investment option to supplement Social Security, pensions, or other retirement accounts. Annuities are designed to provide a benefit while you are still living, essentially a guaranteed stream of income.
With all the nuances of these investment vehicles, you really need to do your homework to understand which type provides the greatest benefits for you, specifically. That you should fully understand the contractual arrangement you have with the firm, agent or broker cannot be overemphasized. If you don’t understand the product sufficiently, ask a lot of questions until you are reasonably comfortable with it. I guarantee that those financial professionals don’t take these investments lightly and neither should you. You deserve to enjoy your Fortune 500 retirement. After all, you earned it!
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