No risk to my principal, and it can grow how fast?

This is the 25th anniversary of the introduction of a safe money retirement option, the Index Annuity. Here we will look at the above-average growth potential of this novel annuity in 2020.

Let us first look back 25-years to see why there was a need for a new way to grow money safely.

Over the fifteen-year period, 1980-1995, interest rates on bank CDs had fallen from almost 14% in 1980 to 6%. Imagine the disappointment when your 12% CD matured and you could now only earn half as much.

Retirement savers had enjoyed the higher rates and were looking for new opportunities to safely grow their money.

In 1995, Keyport Life, a Canadian company, introduced a new way to earn interest in a Fixed Annuity. This new approach was to tie the interest rate to the performance of the stock market- this had never been done before.

People like the stock market because of the large potential gains. People can also dislike the stock market because of the large potential losses.

Keyport’s idea was to eliminate the possibility of loss. This idea proved widely popular.

American insurer, Lincoln Benefit Life, introduced the Index Annuity to US citizens later that same year. I assisted a recent retiree in Maumee, Ohio to help him purchase contract #583 from Lincoln Benefit. He owned that Index Annuity until he passed in 2018.

From that first contract in 1995, I have loved the many unique benefits an Index Annuity can provide in retirement planning.

The first benefit to be appreciated and valued is the potential to grow your retirement savings faster than any other safe money option.

With an Index Annuity your interest rate was often tied to the performance of a well-known stock market “index”, like the S&P 500 or the Nasdaq.

Newer Index Annuities are now having their performance linked to less common indexes; ones often containing more asset classes than just stocks. These new indexes are chosen for their potential for larger returns.

In years when your index goes up, you will earn interest. In years when the index loses value, you earn no interest. But you do not lose money, whether the index goes down 1% or 30%.

What about these new indexes that might grow even faster? One new example is the Credit Suisse Momentum Index.

The Credit Suisse Momentum Index is a global multi-asset index that dynamically allocates across its components using a unique and flexible momentum-driven strategy with risk-adjusted weightings. The Credit Suisse Momentum Index was designed to adapt to various market conditions and generate consistent returns over time.

The performance has been impressive. Over the past 20-years, the worst 10-year period generated an average annual rate of return of 6.4%. The best 10-year period had a whopping 9.4% annual rate of return.

A great example of new Index Annuity crediting strategies combining above average growth potential with the guarantee that you cannot lose money.

Greater growth with no additional risk. That is just one of the benefits of a Index Annuity. Come back again soon for the next reason to include an Index Annuity in your retirement income plan.

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