2. Protected Accumulation Strategy
The protected accumulation strategy takes advantage of principal protection features on variable annuities. A guaranteed minimum accumulation benefit (GMAB) rider on an annuity is the most basic of these. Your assets are invested in a portfolio that typically has a larger equity position than the roughly 10% stake outlined in the anchor strategy above. For a fee, the GMAB rider guarantees that at the end of the annuity's investment period—typically 10 years—you'll have at least the same asset value you started with.
Another potential benefit is that most GMAB riders let you reset the level of principal protection each year if your investments have grown in value. If you do lock in a higher balance, the investment period resets and your balance is guaranteed for another 10 years. It is possible that your fee may increase if you elect this option and annuity features will vary by the issuing company.
For example, say you originally invested $100,000 in a variable annuity with a GMAB rider. After the first year, the annuity's underlying investments grew to a value of $105,000. Locking in that new balance would guarantee that you would have at least $105,000, regardless of how the markets performed after a new 10-year period. On the other hand, if the underlying investments lost value in that first year, you could be comforted by the knowledge that your original $100,000 was guaranteed.
Please note: If you do decide to implement a protected accumulation strategy, you should do your research as the GMAB terms and fees vary from one product or company to another.
In next blogpost, we will discuss how to determine which strategy is right for you.