What is a registered index-linked annuity and how does it work?Finances
As you near retirement, protecting your money from losses due to stock market downturns may become a priority. But for some investors, the cost of that protection may not be worth the benefit. If you are in this situation, you may want to ask your financial professional about a registered index-linked annuity (RILA).
Choosing an annuity that’s appropriate for your situation depends in part on your tolerance for risk. Generally speaking, the more risk you’re willing to accept, the higher your potential return. From a risk standpoint, a RILA can be described as a cross between a fixed indexed annuity and a variable annuity. A RILA may be a good match for you if you want to limit your downside exposure and you are willing to accept some market risk in exchange for more growth potential.
A closer look
Like a FIA, a RILA provides the opportunity for growth based in part on the performance of a stock market index. Other similarities include:
- tax-deferred growth potential
- annual free withdrawal amounts
- an option to convert the annuity into a stream of retirement income payments
Neither a RILA nor a FIA is a stock market investment and neither one directly participates in any stock or equity investments.
However, there is an important difference between these two indexed annuities. With a RILA, you accept a level of risk of market loss in exchange for higher upside potential.
How it works
The upside and downside limits of RILAs are connected, so a higher level of protection from downside risk means a lower cap on upside potential, and vice versa. When index performance is positive during a term, your annuity may earn interest credits, limited by a cap or participation rate. Index declines can result in negative interest credits, with a level of protection from any loss.
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RILAs are sometimes called buffered annuities because they “buffer” assets from a level of market loss
- Downside protection - A buffer provides downside protection, limiting exposure to a percentage of market loss, typically 10, 20 or 30 percent. For example, if an index declines 15 percent and you choose a 10 percent buffer, you would incur a 5 percent loss.
- Meeting the need for accumulation – RILAs are typically designed to help you accumulate money for retirement or other long-term needs. If you are searching for an option that provides lifetime income, another annuity solution may be a better fit. You may consider a RILA if you’re looking to supplement your retirement plan and would like to choose from a variety of protection and growth options to create a strategy that aligns with your individual retirement needs.
Discover your “comfort zone” for risk
How much risk are you willing to take to grow your retirement nest egg? The right blend of risk and return potential can increase your confidence in your retirement plan and help you stay in your financial comfort zone. Find your comfort zone in the annuity spectrum.
It’s important to know your annuity “comfort zone” when it comes to your tolerance for risk.
Investing may feel smooth as glass when there’s time to ride out the effects of volatile markets. But the closer retirement gets, the less time there is to recoup lost ground. If your retirement planning goal is growth with some protection from market swings, ask your financial professional if adding a RILA to your portfolio could be the right choice.
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Registered index-linked annuities have a risk of substantial loss of principal and related earnings. They are designed to be a long-term investment product used to help provide income for retirement and are not suitable as a short-term investment.
All Segment Credits, including those with a guaranteed rate of interest, are paid by the insurance company and subject to its claims paying ability.
Indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. Market indices may not include dividends paid on the underlying stocks, and therefore may not reflect the total return of the underlying stocks; neither an index nor any market-indexed annuity is comparable to a direct investment in the equity markets.
Registered index-linked annuities can only be marketed and sold by securities licensed financial professionals. Athene Annuity and Life Company, West Des Moines, Iowa, is the issuer of the contract. Any discussion of this product must be preceded or accompanied by a Prospectus which provides more detailed product information including all charges or limitations as well as definitions of capitalized terms.