Think about the word “hybrid” and many different things may come to mind, but one factor stands out: combining two different attributes to make one superior item. Hybrid cars blend gasoline and electric motors to provide power and range; Labradoodles are a fun dog hybrid that mixes Labrador retrievers with poodles. The cronut is another great example; this baked item takes a flaky croissant crust and blends it with the sweet richness of doughnuts to create a delicious new treat.
Hybrids also exist in the financial world. These hybrids take the best attributes from different financial products to create something new, something powerful, and something that provides the best of both worlds. Greg W. Anderson, a retirement planning professional and founder of Balanced Financial, Inc. in Fort Collins, Colorado, has shared details about financial hybrids with his clients. In this guide, we will explore a unique financial hybrid that is gaining in popularity in recent years.
The Hybrid Annuity Defined
One financial hybrid getting a lot of attention is the hybrid annuity, a form of retirement investment that takes key attributes from two different annuity structures to create a flexible, lower-risk option for investors. An emerging trend in retirement planning is the concept of creating income streams after retirement; before this, the goal was to save funds for the future without any real consideration about generating additional income. The hybrid annuity offers income and growth in one package.
A hybrid annuity allows investors to split their retirement funds between fixed-rate and variable-rate investment assets. In addition, this hybrid retirement product provides risk balancing properties. Investors can divide retirement funds between conservative low-risk assets that may have a guaranteed rate of return but may not accrue value quickly and those with the potential for higher returns but also higher risks.
How Does a Hybrid Annuity Work?
To get started with a hybrid annuity, investors first establish a mutual fund, then place a portion of the investment into a sub-account within that fund. Additional retirement savings are kept separate in order to ensure a certain level of income payment after retirement is reached.
Some hybrid annuities pair a fixed-rate annuity with an indexed annuity product, giving the investor more protection against market fluctuations. This hybrid model is a better choice for those who desire higher returns but without the high risks that often come with those returns. In effect, the hybrid balances the two risk profiles, preserving more funding and achieving significant growth in a relatively safe manner.
Considerations Regarding the Hybrid Annuity
Although the hybrid annuity has gained favor in recent years, it may not be the ideal solution for every investor. Those nearing retirement age may consider other options; the hybrid annuity is more suitable for those investors farther away from their retirement years. Young investors may be better served by investing in more traditional products like equities to get better returns.
For investors who want stability and a guaranteed source of retirement income, however, the hybrid annuity may be a great option. Financial expert Greg Anderson suggests discussing this option with a retirement planning professional, who can accurately gauge an investor’s risk tolerance before pursuing this unique retirement product. Greg’s firm, Balanced Financial, Inc., can help individuals prepare for their retirement with expert advice, innovative strategies, and the knowledge needed to secure a stable financial future.