If 2020 taught us anything, it was that anything can happen. So, what can you do to be prepared? First, learn how to protect your money during a recession.
What Happens In A Recession?
The technical definition of a recession? When real Gross Domestic Product (GDP) drops for 2 or more quarters, back to back. What does that mean in simple terms? Well, a few things. First, during a recession, household incomes are down and unemployment is high. In addition, consumer spending is low. On top of that, the stock market typically drops as well. In fact, many investors may pull their money out of the market entirely. Businesses may begin to lose money and then have to lay off more workers. As if this wasn’t enough, low employment generally causes people to spend less money. Therefore, there is less money flowing through the economy. For some people, a recession may lead to a feeling of uncertainty.
No one can know for sure what the stock market will do at any given time. However, we can use history to give us some indication of what could happen. Overall, a recession usually causes the stock market to drop. If you have your retirement accounts invested in the stock market during a recession, you may lose money. Doing this while you are still working may be ok. But, a stock market crash when you are at or near retirement may not be a risk you want to take. Thankfully, we can show you how to protect your money during a recession.
Fixed Index Annuities: One answer for how to protect your money during a recession
Fixed index annuities (FIAs) are one product that may be able to help you save your money from downturns in the market. An annuity is a contract between you and an insurance company. You agree to contribute a set amount of money, and to not withdraw it for a certain period of time. In exchange, the insurance company agrees to protect your principal and provide you with a reasonable rate of return.
Are All Annuities The Same?
There are various types of annuities available, each with many options to choose from. Although the FIA interest is based on an index, it isn’t tied to the market like a variable annuity is. To clarify, and FIA may have a guaranteed minimum interest rate, no matter what the market is doing. Also, it protects the principal balance even if the market goes down. In this way, an FIA is less risky than a variable annuity. Variable annuities are tied to the stock market and therefore, have a greater risk. Unlike either of these options, a fixed annuity doesn’t offer any increases in its interest rate. Instead, the contract indicates a specific interest you get and that remains the rate for the term of the agreement.
The exact terms and conditions of the agreement vary, depending upon the product and company you choose to work with. However, the overall concept is the same. Fixed Index Annuities allow you to protect your money when the market is down. Yet, when the market goes up, you may still see a reasonable gain. For some people, an FIA is a win-win situation.
Learning Your Options
At Retallick Financial Group, we want all retirees to learn as much as possible about their retirement options. To that end, we offer complimentary dinner seminars on various retirement topics, including how to protect your hard-earned money. Contact us to register for one of these upcoming educational events.