Interest Rate Risk

Understanding Interest Rate Risk and the Role of Fixed Indexed Annuities in Mitigating This Risk

Interest rate risk is the potential for changes in interest rates to impact the value of investments or the income generated from those investments. In a low interest rate environment, retirement savings may grow more slowly, making it challenging to accumulate sufficient funds for a comfortable retirement. 

The Impact of Low Interest Rates on Retirement Savings

When interest rates are low, traditional savings vehicles like bank certificates of deposit (CDs) and bonds may not provide enough growth to keep pace with inflation. This can make it difficult for retirees to maintain their purchasing power over time. 

For example, consider a $100,000 investment in a 5-year CD with a 1% annual interest rate. After 5 years, the CD would be worth $105,101. However, if the annual inflation rate during this period is 2%, the real value of the investment would have decreased to $95,193.22, as shown in the visual below: 

In this scenario, the low interest rate environment has led to a loss of purchasing power over time, undermining the investor’s retirement savings goals. 

Fixed Indexed Annuities (FIAs) as a Solution

FIAs offer a compelling alternative to traditional savings vehicles in a low interest rate environment. By providing the potential for growth based on the performance of selected indices, FIAs can help retirement savings keep pace with inflation. At the same time, FIAs protect the principal investment against market losses, making them a safer option than direct investment in equities. 

Key features of FIAs that can help mitigate interest rate risk include: 

  1. Growth Potential: FIAs offer the opportunity for growth based on the performance of one or more indices, such as the S&P 500 or Nasdaq-100. This growth potential can help retirement savings outpace inflation over time. 
  1. Principal Protection: FIAs safeguard the initial investment against market downturns, ensuring that the contract value does not decrease due to negative index performance. This protection is crucial for preserving retirement savings in a low interest rate environment. 
  1. Guaranteed Income: Many FIAs offer the option to convert the contract value into a guaranteed lifetime income stream. By providing a reliable source of income that is not directly tied to interest rates, FIAs can help retirees maintain their desired lifestyle even when interest rates are low. 
  1. Tax-Deferred Growth: Earnings within an FIA grow tax-deferred until withdrawals begin, allowing for potentially greater accumulation over time compared to taxable savings vehicles. 

Oceanview's Harbourview Fixed Indexed Annuity

The Harbourview FIA, offered by Oceanview Life and Annuity Company, provides several features that can help address inflation risk: 

  • Potential for Growth Linked to Market Indices: The Harbourview FIA offers multiple index crediting strategies tied to well-known market indices like the S&P 500, Nasdaq-100, and Russell 2000. If these indices perform well, your annuity value can grow, potentially outpacing inflation. 
  • Protection from Market Downturns: While the Harbourview FIA allows you to participate in potential market gains, your principal is protected from market losses. This means even if the market experiences a downturn, your annuity value won’t decrease, safeguarding your retirement savings from the negative effects of inflation during those periods. 

Conclusion

In a low interest rate environment, retirement savings held in traditional vehicles like CDs and bonds may struggle to keep pace with inflation. Fixed Indexed Annuities, such as Oceanview’s Harbourview FIA, offer a compelling solution by providing growth potential, principal protection, and guaranteed lifetime income options. By incorporating FIAs into their clients’ retirement strategies, financial professionals can help retirees navigate the challenges of interest rate risk and maintain their desired lifestyle. 

Why Choose Oceanview? 

  • Strength: Oceanview has an “A” Excellent rating from A.M. Best, reflecting our stability and reliability. 
  • Transparency: We believe in clear, straightforward communication. Our products are easy to understand, helping you make informed decisions about your financial future. 
  • Competitive Rates: Our special introductory rates on select crediting strategies provide an added incentive to start your retirement journey with us. 
  • Supportive: Our dedicated team is committed to providing exceptional customer service and support throughout your retirement journey. 

Take the Next Step Toward a Secure Retirement

Don’t let retirement risks jeopardize your financial future. Schedule a consultation with your financial professional today to learn how Oceanview’s Fixed Indexed Annuities can help you build a retirement plan that weathers any storm. With competitive rates, excellent financial strength, and a commitment to your success, Oceanview is your partner in retirement security. 

To learn more or to schedule a meeting with an Oceanview Life representative, please contact:  

Oceanview Life and Annuity Company
(833) 656-7455

Disclosures:
This material is a general description intended for general public, educational use. Oceanview Life and Annuity Company is providing investment advice for any individual or in any individual situation, and therefore nothing in this should be read as investment advice. Please reach out to your financial professional if you have any questions. May
not be available in all states. Policy form numbers and provisions may vary. Rates are guaranteed depending on the guarantee period selected at policy issue. Within 30 days prior to the end of the Initial Interest Guarantee Period, we will send our contract holder a notification informing them the date the Guarantee Period is ending and provide the renewal rate and Surrender Charges in effect for the subsequent Guarantee Period. Excess withdrawals are subject to a Surrender Charge. The IRS may impose a penalty
for withdrawals prior to age 59 1/2. All annuity features, risks, limitations, and costs should be considered prior to purchasing an annuity within a tax-qualified retirement plan. Annuities issued by Oceanview Life and Annuity Company, 1819 Wazee St, 2nd Floor, Denver, CO 80202. www.oceanviewlife.com.

Oceanview Life and Annuity Company nor any of its representatives may provide tax or legal advice. While care was taken in compiling this information, the Company reserves the right to correct any typographical errors that may exist. In California, doing business as Oceanview Life and Annuity Insurance Company.

HARBOURVIEW ANNUITIES ARE PRODUCTS OF THE INSURANCE INDUSTRY AND NOT GUARANTEED BY ANY BANK NOR INSURED BY FDIC OR NCUA/NCUSIF. MAY LOSE VALUE. NO BANK/CREDIT UNION GUARANTEE. NOT A DEPOSIT. NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY. MAY ONLY BE OFFERED BY A LICENSED INSURANCE AGENT. GUARANTEES ARE SUBJECT TO THE CLAIM PAYING ABILITY OF THE ISSUING INSURANCE COMPANY.