What is a RILA?
Registered index-linked annuities (RILAs) are gaining attention as more investors look for ways to balance market participation with some downside protection. Sitting between fixed and variable annuities, RILAs work differently than other retirement products.
Understanding how they work and who they’re most suitable for can help you decide whether they belong in your retirement plan.
RILA Basics
A RILA is a deferred annuity designed to provide you with retirement income. Its returns are tied to the stock market and have limits on both your potential gains and losses.
RILA Versus Other Annuities
RILAs are designed to balance risk and reward. They include built-in guardrails to help reduce your losses during downturns while still allowing some growth during upswings.
Fixed indexed annuities generally carry less risk but also tighter limits on potential gains. Variable annuities offer greater growth potential, but with more risk. RILAs sit between the two.
Who RILAs Might Appeal To
For investors who find fixed indexed annuities too conservative and variable annuities too risky, RILAs may feel like a “just right” approach. They can be a good fit for investors who worry less about chasing maximum returns and more about staying invested even when the market is volatile.
What to Know Before You Buy
Before you buy a RILA, it is important to consider:
Tax-deferred growth: RILAs are tax-deferred annuities, meaning you will pay taxes when you make withdrawals.
Caps and buffers: You can select the cap and buffer rate on a RILA. The cap limits how much you can earn, while a buffer protects you from a certain amount of loss.
Liquidity: RILAs, and annuities in general, are not very liquid investments. If you want to make early withdrawals, you could be subject to penalties and surrender charges.
Cost: Many RILAs do not charge investors upfront fees, but keep in mind the surrender charges that come into play with early withdrawal.
Any questions? Reach out to discuss your financial strategy.