MARKET RISK & SEQUENCE OF RETURNS
The Two Market Risks That Can Quietly Weaken Unsecured Retirement Plans — And the Contract Designed to Address Both.
Most people understand market risk — the portfolio loses value. Far fewer have encountered the
concept of sequence of returns risk. That gap is where many retirement plans face their most
serious disruption.
Sequence of returns risk occurs when a significant market decline happens in the early years of retirement — precisely when withdrawals begin. A 30% market loss in year two, combined with a 4% annual withdrawal, can permanently alter the trajectory of a retirement income plan — even if markets eventually recover — because shares were liquidated at a loss to fund living expenses.
A Fixed Index Annuity is designed to address both risks within the same contract. Your principal is protected against negative index performance — the indexed credit floor is zero, not negative. When the index rises, you receive a portion of the gain up to the cap. Annual insurance charges apply regardless of index performance. Proper product design is essential.
The income floor established by contract is not subject to market performance.
Annual insurance charges apply regardless of index performance. Guarantees are backed solely by the claims-paying ability of the issuing insurance company.
How the Contract Works
The Three Layers of Protection
Layer 1: Principal Protection: The Zero Indexed-Credit Floor
Core retirement assets are placed in a Fixed Index Annuity structured so that negative index performance results in a zero indexed credit — not a reduction in principal from index movement.
Annual insurance charges apply. Guarantees are backed solely by the claims-paying ability of the issuing insurance company.
Layer 2: The Sequence of Returns Buffer
With an income floor established by contract, there is no need to liquidate market-exposed assets during a downturn. Growth assets remain invested and can recover without interference — the volatility buffer. A market decline becomes a temporary condition the income floor does not register.
Layer 3: Lifetime Income: The Contractual Commitment
The income generated by the annuity with a lifetime income rider continues for as long as you live — by contract. 85 or 105, the income continues, regardless of market performance, interest rates, or legislative change.
Guarantees are backed solely by the claims-paying ability of the issuing insurance company.
A Less Obvious Benefit of the Income Floor — It Strengthens Your Tax Coordination Strategy
When baseline income is established by contract, withdrawals from taxable accounts can be reduced. Lower withdrawals mean lower taxable income. Lower taxable income creates more room in lower federal brackets for Roth conversion — before Required Minimum Distributions at age 73 fill those brackets permanently.
The annuity income floor does not only address market risk. It creates the structural conditions under which Roth conversion coordination becomes more efficient. Combined with an IUL and a coordinated CPA strategy, these three tools work as one system rather than three separate products.
No AUM fees. CPA collaborative. Licensed in 10 states.
DW Financial Group · (908) 738-9836