Get upside potential with less exposure to market fluctuations
Choose from a range of protection levels
With tax-deferred growth until money is withdrawn
Annuities in retirement planning
The annuity market is a long-established one, with countless strategies that help address saving and income needs in retirement planning. One challenge faced by many retirees and pre-retirees, regardless of market conditions is:
How to pursue returns necessary to grow retirement assets while reducing exposure to significant market loss?
Structured annuities may help investors faced with this challenge. With increasing variety and flexibility in the marketplace, structured annuities can help strike a personalized balance between risk and reward based on each investor’s evolving needs and objectives.
What is a structured annuity?
A structured annuity is a long-term, tax-deferred financial vehicle used primarily for retirement. Its design gives investors the opportunity to earn interest based on the market growth of an index or indices that they select.
Structured annuities offer multiple crediting strategies, allowing investors to choose between how much growth potential and/or downside protection they want. As each crediting period expires, the investor can reallocate to a new type of crediting strategy for a new term. This flexibility can help meet changing financial objectives over the life of the structured annuity.
Structured annuities can also be referred to as registered index-linked annuities, variable-indexed annuities, indexed- variable annuities, or buffered annuities.
The chart below shows how structured annuities compare with other deferred annuity offerings in a risk-return context.
Getting started with structured annuities
Investors should understand that the level of protection offered in a crediting strategy directly correlates to the level of upside potential available.
- A structured annuity with more downside protection typically offers less upside potential.
- A structured annuity with less downside protection generally offers more upside potential.
Investors will only receive the stated level of protection if they hold the annuity contract until the end of its crediting period.
Investors often start with these three questions to select a crediting strategy:
1. What market exposure is desired? For example:
Emerging market equities
2. What is the desired crediting period? For example:
3. How much downside protection is sought? For example:
The above graphic is for illustrative purposes, does not represent all of the features available in the structured annuity market, and may include some terms and/or features that are not available in all states performance is not indicative of future results. Future results are not guaranteed.
The table below illustrates how a crediting strategy works assuming an initial investment of $100,000 is made in a structured annuity with the following terms:
S&P 500 Index (“SPX”)
- Crediting period: The duration of time used to calculate gains or losses on the reference index
- Cap rate: A provision in a crediting strategy where a contract owner has the opportunity to participate one- to-one in the gains of the selected reference index up to a defined cap rate, over the specified crediting period
- Buffer: A type of downside protection that absorbs a fixed percentage of the selected reference index’s losses over the specified crediting period
SPX gain greater than cap rate
SPX performance: 30%
The result: 20% gain
Value at renewal: $120,000
SPX gain less than cap rate
SPX performance: 10%
The result: 10% gain
Value at renewal: $110,000
SPX loss within buffer
SPX performance: -5%
The result: 0% return
Value at renewal: $100,000
SPX loss greater than buffer
SPX performance: -20%
The result: -10% loss*
Value at renewal: $90,000
*Buffer absorbed the initial decline only
In this example a loss occurs only if the index falls more than 10% over the crediting period. If the index falls more than 10%, losses that exceed 10% are deducted from the account value.
Structured annuities may be appropriate for investors who are in, or approaching, retirement and seeking protection against unexpected market downturns that could negatively affect their financial plan. However, withdrawals or surrender charges during a specified period may be subject to fees and/or penalties and potential investors must be comfortable with putting principal at risk and making a long-term investment.
- Potential for growth by participating in market upside, subject to the limitations of the crediting strategy
- Risk mitigation with a level of partial downside protection
- Tax advantages, as interest credited grows tax- deferred until earnings are distributed
- Structured annuities are complex, investment vehicles and are subject to risk, including the potential loss of principal.
- From term to term, available reference indices, renewal rates for upside features, protection options, and term lengths are all subject to change, at the carrier’s discretion.
- Early withdrawals that exceed the free annual withdrawal amount during the surrender charge period may trigger surrender charges, fees, and/or tax penalties, and may be subject to negative adjustments, which could be substantial. Early withdrawals that exceed the free annual withdrawal amount may also be subject to a market valuation adjustment, or MVA, which can reduce the account value or the actual withdrawal amount. For this reason, an investor should be prepared and able to hold an annuity through the full length of the surrender charge period which is typically between 5-10 years.
- Withdrawals and distributions of taxable amounts are subject to ordinary income tax and, if made prior to age 591⁄2, may be subject to an additional 10% federal income tax penalty.
- Performance, payments, and guarantees are backed by the strength and soundness of the issuing insurance company and are subject to their claims-paying ability.
Annuities and insurance services provided by SIMON Annuities and Insurance Services LLC, an affiliate of iCapital, Inc. Structured investment and certain annuities products and services may be offered through SIMON Markets LLC (“SIMON”). SIMON is a registered broker/dealer, member FINRA and SIPC, and is affiliated with iCapital, Inc. and its subsidiaries. Please see the disclaimer at the end of this document for more information about these entities.
IMPORTANT INFORMATION — DISCLAIMER
ANNUITIES ARE CONSIDERED COMPLEX PRODUCTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS.
This is not intended to be an offer or solicitation to purchase or sell any security or to employ a specific investment strategy.This material is intended as general background information, for educational purposes only, and should not be used as a primary basis to make a decision to purchase an annuity contract. This material is being provided for informational purposes only and does not take into account any specific investment objectives or financial situation of any investor. The information is not intended as investment advice and is not a recommendation about managing or investing retirement savings. Actual annuity contracts may differ materially from the general overview provided.
Prior to making any decision with respect to an annuity contract, purchasers must review, as applicable, the offering document, the disclosure document, and the buyer’s guide which contain detailed and additional information about the annuity. Any annuity contract is subject in its entirety is to the terms and conditions imposed by the carrier under the contract. Withdrawals or surrenders may be subject to surrender charges, and/or market value adjustments, which can reduce the owner’s contract value or the actual withdrawal amount received. Withdrawals and distributions of taxable amounts are subject to ordinary income tax and, if made prior to age 591⁄2, may be subject to an additional 10% federal income tax penalty. Annuities are not FDIC-insured. All references to guarantees arising under an annuity contract are subject to the financial strength and claims-paying ability of the carrier. This does not constitute legal, accounting or tax advice, and the recipient should consult with his or her legal, accounting or tax adviser regarding the instruments described in this material.
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Annuities and insurance services provided by SIMON Annuities and Insurance Services LLC, an affiliate of iCapital, Inc. Structured investment and certain annuities products and services may be offered through SIMON Markets LLC. Alternative investment products and services may be offered through iCapital Securities, LLC. iCapital Securities LLC and SIMON Markets LLC are each a registered broker/ dealer, member FINRA and SIPC, and an affiliate of Institutional Capital Network, Inc. (“iCapital”). These registrations and memberships in no way imply that the SEC, FINRA, or SIPC have endorsed the entities, products or services discussed herein. iCapital and iCapital Network are registered trademarks of Institutional Capital Network, Inc.
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