Retirement Savings: Does the Return Match the Risk?

Financial conversations often start with "how much will it earn." A better question is "what are you risking to earn it?" A return should make sense for the risk you are taking.

Stocks can provide strong long-term growth, but both principal and previous gains are at risk because markets can decline. Bonds may appear more conservative, but they carry risks too. Higher-yielding bonds pay more because the borrower presents a credit risk, and high-quality bonds can lose value too when interest rates rise or credit conditions deteriorate.

Fixed annuities are offered by insurance companies and are used when protecting your savings is more important than chasing the highest possible return. Their guarantees depend on the insurer's financial strength and claims-paying ability.

A Multi-Year Guaranteed Annuity (MYGA) is a fixed annuity that provides a guaranteed interest rate for a specified period without exposing your account to stock market losses. The period is similar to a bank Certificate of Deposit, although MYGAs are insurance contracts and often offer "free" partial withdrawals during the term.

A Fixed Indexed Annuity (FIA) earns interest based partly on the performance of a market index. You won't receive all of the market's upside, but a market decline won't reduce your account because of that decline. Previously credited interest and your principal are also protected. FIAs often offer "free" partial withdrawals during the contract period.

Some of your retirement savings may be intended for growth. Some may need to remain readily available. And some may be savings you simply cannot afford to lose in a market downturn.

When your goal is protecting savings,  Mark Dierolf's services can help. Call Mark at (831) 753-0507 for a free consultation.