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How fixed indexed annuities can help take the sting out of health care costs
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According to , U.S. healthcare spending rose to $4.8 trillion in 2023, outpacing the projected annual gross domestic product growth rate of 6.1%.
With prices increasing year to year, managing health care expenses can be one of the biggest challenges to a financially secure retirement. Fixed indexed annuities can help, because they can provide a predictable source of income to pay health insurance premiums or other costs.
Any way you look at it, a person鈥檚 future health is one of retirement鈥檚 biggest unknowns, making it hard to estimate how much money to budget for health care expenses. Because these costs also rise at different rates, there鈥檚 not a single inflation rate that applies to all of them. In addition, how much retirees pay for insurance premiums, deductibles, prescription drug coverage and nursing care is affected by other variables, including their:
- Health coverage
- Age
- Gender
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- Health conditions
- Retirement income
- State where individual retires
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However, one thing is certain. Health care will continue getting more expensive. According to , a maker of health care cost projection software, the cost of health care is expected to continue its historical trend, rising 2 to 2.5 times the rate of U.S. inflation. Consider these out-of-pocket health care costs individuals could pay during their lifetime, if they retired in 2024.
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Total projected lifetime out-of-pocket health care costs
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Total spend |
| Original Medicare plus Medigap plus Part D |
Male |
$281,000 |
| Female |
$320,000 |
| Medicare Advantage Plus Part D Plan |
Male |
$128,000 |
| Female |
$147,000 |
Higher female costs generally reflect women鈥檚 longer life expectancy compared to men.
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Fixed indexed annuities can help manage the rising cost of care
Managing health care costs without depleting assets can be a challenge for some retirees. Fixed indexed annuities can help people manage expenses they know they鈥檒l have while giving them the flexibility to help meet future needs.
A 鈥渞etirement paycheck鈥� that鈥檚 guaranteed for life
Lifetime withdrawals from an income or benefit rider can provide a guaranteed stream of income for predictable expenses like premiums, copays, dental and vision care. Keep in mind that rider payout factors increase with age, and the value of the benefit base used to calculate withdrawal amounts typically increases the longer the contract is held.1
Protection and growth potential
A fixed indexed annuity鈥檚 indexed crediting strategies earn interest based in part on the upward movement of a stock market index.2 The annuity鈥檚 Accumulated Value is protected from loss due to market downturns. This combination of protection and growth potential can be important when considering costs that are likely to increase regardless of economic conditions.
Access to money with annual free withdrawals
Most fixed indexed annuities allow a yearly free withdrawal amount.3 Required Minimum Distributions are IRS mandatory withdrawals and are generally considered part of the free withdrawal. Keep in mind that withdrawals in excess of the free amount will be subject to a Withdrawal Charge and Market Value Adjustment where applicable, and will reduce a rider鈥檚 Lifetime Income Withdrawal amount.
Confinement provisions
Most fixed indexed annuities offer confinement provisions, either as a waiver of withdrawal charges in the base contract or as a rider benefit. Rider benefits typically provide an increase in the Lifetime Withdrawal amount for a set period if certain conditions are met. While not the same as long-term care insurance, these provisions can help defray the cost of care in a nursing home or other Qualified Care Facility. Annuities that offer long-term care benefits are also available.
It's important to consider all expenses as well as income and retirement goals. Fixed indexed annuities can help people retire confidently to the dream they鈥檝e nurtured for years.
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Guarantees provided by annuities are subject to the financial strength of the issuing insurance company.
1 Lifetime Income Withdrawals may be reduced or may stop if you take Excess Withdrawals from your contract. If Excess Withdrawals, Withdrawal Charges or MVAs reduce the contract's Accumulated Value to zero, your Lifetime Income Withdrawal Payments will stop and the applicable rider will terminate.
2 Fixed indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. An index may not include dividends paid on the underlying stocks, and therefore may not reflect the total return of the underlying stocks; neither an index nor any market-indexed annuity is comparable to a direct investment in the equity markets.
3 Withdrawals and surrender may be subject to federal and state income tax and, except under certain circumstances, will be subject to an IRS penalty if taken prior to age 59陆. Withdrawals are not credited with index interest in the year they are taken. Withdrawals in excess of the free amount are subject to a Withdrawal Charge or MVA which may result in the loss of principal if taken during the first specified years of the contract. Withdrawals are based upon the Accumulated Value of the last Contract Anniversary.
This benefit is NOT long-term care insurance or health insurance nor is it a substitute for such coverage.
