Coronavirus Stocks Plunge: Where Retirees Should Have Their Savings
When the stock market takes a hit, individuals who are nearing retirement or who are already retired get quite nervous. The coronavirus stock market plunge is no exception.
Many news outlets, and even the president, fear a looming recession (Foreign Policy). The Dow Jones Industrial Average, the Nasdaq, and the S&P 500 are all down over 12% from recent peaks (12.3%, 12.5%, and 12.2% respectively) (MarketWatch).
If you’re over the age of 65, you should not have the majority of your hard-earned savings in the stock market. This pandemic reminds us of the volatility that puts retirement savings at risk.
Instead of the stock market, seniors over 65 should seriously consider putting their money in a guaranteed contract that will earn them a modest interest rate with zero risks.
Coronavirus Stocks Plunge – Why the Market Is No Good for Seniors
The Coronavirus has done a number on the stock market, but this pandemic is just one example of the dips the market has seen over the past 10 years.
We can’t forget about the financial crisis of 2008, the S&P’s short bear market in 2011, the 2015-2016 stock market selloff, the S&P’s 19.73% drop by Christmas Eve of 2018, and of course the current COVID-19 stock market crash of 2020.
Growing vs. Preserving
Investing in the stock market over a long period of time is a great financial strategy, but there’s a time for growing your money and a time for preserving it.
When you’re over age 65, it’s time to start shifting your money into places where it can be nurtured and preserved. We don’t want to worry every night about losing the hard-earned money we’ve been saving for decades.
The stock market is not a welcoming place for seniors who need their savings to survive.
How to Earn Interest Safely During a Stock Market Crash
When the market is down, everything is down. The banks are lowering their CD and Money Market rates, and there seems to be no good place to keep your money safe while also protecting it against inflation.
The ideal solution is called a fixed annuity, which is a guaranteed contract with a modest interest rate and no fees.
What’s a Fixed Annuity?
A fixed annuity is a way to grow your savings without taking any hits from the stock market. In short, you can earn some interest on your money with no risk of losing it.
When the stock market is doing poorly like it is now, fixed annuity rates also go down, but it’s all relative.
Everything is down, and a fixed annuity is one of the best options for those who still want to earn some interest. As of mid-March 2020, fixed annuity rates are in the 3% range.
For some perspective, when the market is doing great, it’s typical to see fixed annuity around 4%.
Most Popular Interest-Earning Options for Seniors Over 65
There are two types of fixed annuities we recommend for seniors over the age of about 65.
A Safe, Predictable 3% Return
The first is called a Multi-Year Guarantee Annuity, or MYGA. It’s exactly how it sounds – you have a guaranteed interest rate over multiple years. The most common contract length is 5 years, but you can go as short as 1 year or even longer than 10 years.
This is the most popular annuity by far among our clients, with about 8 in 10 selecting it.
Most individuals over 65 choose a MYGA because it’s predictable. You don’t have to worry about how the economy will react to the coronavirus – you can go to bed at night knowing your money is growing.
Every morning, you’ll have a little more money in the annuity. It’s a beautiful thing.
Those who just lost over 12% due to the coronavirus stock market crash are in a serious financial crisis. Our clients who have a MYGA are doing just fine.
Potential for Bigger Gains, But 0% Return When the Market Is Down
The second most popular option, which about 2 in 10 clients choose, is a Fixed Index Annuity (FIA). FIAs participate in the stock market gains without participating in the losses.
Your gains are capped, but you can never go below 0% – the worst you can do is to stay the same. When the market is doing great, you can earn more, but when it’s down, your money isn’t growing.
For example, if the market goes up 9%, you might be capped at 6%. But if it goes down 12% – like it is now – you go down 0%. You don’t lose anything.
A lot of people over 65 like this strategy, because they still have the fun of stock market gains (they can party with friends when it’s up), but they can sleep tight at night knowing their hard-earned cash isn’t tanking.
Which Fixed Annuity Is Right For Me?
If you’re around age 65, we recommend the safe 3% bet right now. That’s called a MYGA, or a Multi-Year Guaranteed Annuity. It’s predictable, and you know your retirement savings will grow a little bit every day.
If you’re a bit younger, say around 50, it can be fun to put some of your savings in a FIA. It diversifies your risk but also gives you the potential to earn more than a MYGA when the market gets better.
However, with the stock market where it is right now, we would recommend the MYGA, or the safe, 3% contract, as the best bet for growing your retirement savings. Remember that there are no fees and zero risks with MYGAs – debunking a common myth about fixed annuities.
If you have a 401(k), we recommend rolling that over into a fixed annuity when you’re retired. It’s tax-exempt, and it starts earning safe interest right away.
Get Started With Safe Interest
Yes, the stock market is way down thanks to the coronavirus, but your retirement doesn’t need to go down with it.
Invest your money in a fixed annuity to ensure you’re protected against the volatility of the market. You can start a fixed annuity with as little as $10,000. The most common deposit we see is about $50,000, but we do have clients who roll their entire retirement portfolio to a fixed annuity. Those deposits can be upwards of $1 million.
Fixed annuities are a great, safe option for those who have a small deposit as well as those with a more substantial one.
To learn more about the companies available in your state – and if a fixed annuity is right for you – please give us a call at 833-801-7999 and ask for Luke or Sarah.
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