Indexed Annuity vs. 401(k): What's the Difference and Which Is Right for You?

If you've been saving for retirement in a 401(k), you're doing something right. But as retirement gets closer, many people start asking: Is there a safer place to put this money?

WHAT IS A 401(K)?

A 401(k) lets you invest pre-tax dollars into mutual funds and other investments. The big upside: employer matching and long-term growth potential. The big risk: your balance is directly tied to market performance. When the market drops, so does your 401(k).

WHAT IS AN INDEXED ANNUITY?

An indexed annuity grows your money based on the performance of a stock market index — but without actually investing in the market. You participate in the upside of a marketindex, but you are protected by contract from any losses. Your gains lock in each year and cannot be reversed.

KEY DIFFERENCES:

• Market Risk: 401(k) fully exposed. Indexed annuity principal protected by contract.

• Growth: 401(k) unlimited but volatile. Annuity capped but consistent.

• Guaranteed Income: Annuities can offer lifetime income. 401(k) has no guarantee.

• Contribution Limits: 401(k) has IRS limits. Annuities have no contribution limits.

WHICH IS RIGHT FOR YOU?

For most people approaching retirement, a smart strategy uses both: continue contributing to your 401(k) while it has employer matching, but consider rolling a portion into an indexed annuity for protection.

We help families in NM, TX, NC, IL, and IN evaluate this question — at no cost.

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