You’ve spent your whole life building your nest egg.

With all the gloom and doom in the media about pandemics, elections, and wars…

The threat of a recession is real.

And like a coyote breaking into a chicken coup, a recession will swallow your nest egg without thinking twice.

Today, you’ll learn:

1. How annuities can protect your $200k to $600k nest egg from market risk
2. How often recessions occur and when we can expect another
3. How a market crash could set half of your nest egg on fire
4. How annuities compare with CD returns

💡 This is part 1 of a 4-part Annuity series

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How do I protect my $200k - $600k nest egg from market risk?

Historically, market crashes usually come around every 5-7 years.

The last one was 2020.

Historically, we are looking at another somewhere between 2025 and 2027.

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$500k in 2008 (example 1)

Let’s run through an example to see how a crash like 2008 would affect your nest egg.

Imagine this:

You are living on a fixed income, and you have a nest egg of $500k.

Let's say it's invested in the S&P 500, the most common stock index.

For some extra income, you were drawing 5% to have an extra 25k income on top of Social Security and/or pension.

From 07 to 08, the market dropped 38.5% in one year.

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Before you say, “Yeah… but it bounced back…” Let’s run the actual numbers.

💡 to see the full spreadsheet on the following examples, click here.

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In 2008, your 500K declined in value to $307,500.

You draw 25k for your income… because what else are you going to do, cross your fingers and hope it turns around and not draw any income?

Now your nest egg is 282,500.

Almost cut in HALF…. in one year.

Okay, so how does your nest egg build back up in the coming years?

It will take you around 10 years to reclaim your initial value.

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Luckily, after 08, the market bounced back.

What if it doesn’t? What if it’s slow to return?

What if there’s another pandemic?

What if we continue to give money to other countries for war support?

What if our government continues to rack up debt and banks can’t be bailed out like they were in ‘08?

What if it was like the panic of 1929 that launched us into the Great Depression?

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$500k in 1929 (example 2)

You’d started with 500k in 1929.

Based on the return each year after…

Within 8 years, your nest egg is completely gone.

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There’s a time and a place for risk… It’s not in retirement

Here’s the point:

There is a time in your life where you can take whatever risks the market throws at you.

When you were working hard, providing for your family, funneling money into your nest egg, you didn’t care if the market was up one day and down the next.

But now that you are spending down that money in retirement, market risk could ruin your entire plan.

It could steal your quality of life.

It could prevent you from taking that vacation you’ve always dreamt of,

buying that new sports car,

or giving your granddaughter that big graduation gift.

And worst of all, it could make you dependent on family members to keep you afloat.

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“How can I eliminate this risk and still get a good return on my money?”

You may be thinking, what about CDs? I’ve heard you can get a nice return without the market risk.

Well… not so fast.

Over the past 20 years, CD interest has ranged from 0.09% to 5.23%.

Assuming a 22-25% tax bracket and accounting for inflation,

The real return on your money is anywhere from -6.93% to 2.25%.

Most years, after taxes and inflation, your nest egg will lose value with CDs.

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Let me be clear, there may be a place for CDs in your portfolio, but they aren’t returning as much as people think.

So, is there a way to get a solid return on your money, one that beats inflation, but exposes you to ZERO risk?

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Enter, the annuity

You may have some preconceived notions about annuities.

In this 4-week series, I’m going to explain:

• What they are
• What they are not
• Who they benefit most

Annuities date back to the Roman empire.

The term comes from the Greek work “Annua” which meant “annual stipends”.

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They were one of the earliest financial tools.

Today, Annuities have 2 main purposes:

1. To guarantee your nest egg will not decrease, while returning some amount of interest on top
2. To guarantee regular income

There are lots of types of annuities.

• One annuity may focus on getting you the highest interest possible.
• Another may guarantee a specific amount of monthly income for the rest of your life.

and many others in between

On the risk-return graph, annuities offer the highest return of any product that guarantees your nest egg is protected.

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How do annuities guarantee my nest egg is safe?

There are 2 ways annuities guarantee your nest egg is safe:

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1. 0% floor interest rate

Many annuities are set up with a 0% floor interest rate

This means that when the market plummets, you bottom out at 0% return.

However, they will also cap your returns when the market booms.

For example:

If the market is up 20% 1 year, you may make 6%

and if it’s down 20% the next year, you may make 0%

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2. “Dollar-for-dollar reserves”

Unlike banks, which must keep 0-10% of cash reserves on hand, annuity companies are required to keep dollar-for-dollar reserves.

Over the past few decades, there have been federal and state laws passed that say annuity companies must hold most, if not all of your nest egg on hand.

Many insurance companies will exceed this and keep $1.05, even $1.10 in reserves for every dollar they receive.

Over the past few decades, with these requirements, only a handful of insurance companies have failed compared to hundreds of banks.

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That’s all for part 1 of the 4-part Annuity series.

Come back next Saturday and I’ll explain how annuities became so popular in America, and how the post-WWI crash of 1929 changed out system forever.

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