With the inevitability of stock market fluctuation, many retirement investors look for an investment strategy that provides protection of their nest egg while still affording the potential for additional growth. By strategically combining a guaranteed fixed-rate investment* such as a fixed annuity with a diversified PlanMember growth portfolio, you can pursue just such a strategy.
This principal protection strategy is designed help ensure that at least your initial investment will be available at retirement regardless of how the stock market performs. In the event that the stock market provides historically average or superior returns, this strategy positions you to potentially achieve higher long-term growth than a fixed-rate investment.
As a general rule, begin by subtracting your current age from the age that you will begin making withdrawals from the investment. The difference is your investment time horizon. Next, use your investment time horizon and the average annual interest crediting rate of the fixed-rate investment. These factors will determine the allocation of your savings to invest between the fixed-rate investment and the growth component of your portfolio. The idea is to find the percentage of the fixed-rate component of your portfolio that will restore your principal investment amount regardless of the performance of your growth investments.
It is very important to note that a principal protection strategy is not for everyone. If you have a longer investment horizon, you should be aware that by investing a large percentage of your nest egg in fixed rate investments, you are sacrificing the potential to benefit from the historically higher long-term returns of the stock market. This could result in a significantly smaller nest egg in retirement.
Before undertaking a principal protection strategy, you should enlist the help of your PlanMember Financial Professional. To determine an average annual interest crediting rate, you’ll need to consider factors such as first-year bonus crediting, extra surrender period crediting, old money/new money crediting and the historic or guaranteed post surrender period crediting.
Because these calculations can be a little tricky, your PlanMember Financial Professional will be happy to assist you, as well as help you select an appropriate fixed-rate investment and prudently allocate the growth portion of your portfolio.
* Guarantees and benefits are subject to the claims paying ability of the issuing insurance company. Withdrawals of taxable amounts prior to age 59½ are subject to ordinary income tax and a 10% IRS tax penalty may apply. This is not a solicitation or offer to purchase or sell any security. This information is not intended to be used as the primary basis for investment decisions and should not be construed as investment advice.