You are 70 yrs of age and a conservative saver.
Deciding whether to invest in the stock market or save inside an indexed annuity at age 70 depends on several factors, including your financial goals, risk tolerance, and overall financial situation. Here are some considerations for each option:
Investing in the Stock Market
Pros:
Potential for Growth: Stocks can provide higher returns over the long term, which is beneficial if you have a long retirement horizon or want to leave a legacy.
Flexibility: You can adjust your portfolio as needed, and you have access to your money if you need it.
Cons:
Volatility: Stock markets can be volatile, and significant downturns could impact your ability to meet living expenses if you rely heavily on these investments.
Risk: There is a risk of losing some or all of your investment if the market declines.
Typically, retirees might allocate about 30% of their portfolio to stocks, using the "100 minus your age" rule as a starting point2.
Indexed Annuities
Pros:
Guaranteed Income: Indexed annuities can provide a steady income stream, which is attractive for retirees seeking financial stability.
Protection from Market Declines: They offer some protection against market downturns, as they are tied to a market index but often have caps on both gains and losses.
Tax Benefits: Growth is tax-deferred until withdrawals begin5.
Cons:
Complexity: Indexed annuities can be complex, with various caps and fees that might limit potential gains. You can choose an allocation with no caps or limits.
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Liquidity: Some new products at fglife have income anytime feature on year 1.
Fees: FG 123 have 0 fees and other index annuities have zero fees.
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Decision Factors
Financial Goals: If you prioritize a guaranteed income stream and stability, an indexed annuity might be more suitable. If you're looking for potential growth and flexibility, the stock market could be preferable.
Risk Tolerance: If you're risk-averse, an indexed annuity provides more protection against market volatility. If you're comfortable with some risk, stocks might offer better long-term returns.
Financial Situation: If you can afford to wait for 5 yrs from a market downturn, you can be in the stock market. If you depend on your savings for necessary income during retirement, choose index annuities.
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