The problem with sequence risk
For someone decades from retirement, a market crash is uncomfortable but recoverable. For someone in retirement — drawing income while the balance falls — a crash early on can permanently damage the plan. This is sequence-of-returns risk.
How an FIA removes the downside
Your premium goes to the insurer, not the market:
- Index up → you're credited a share of the gain (up to a cap).
- Index down → you're credited 0%. Your account value doesn't move.
- Every credited gain locks in and can't be lost to a later decline.
In 2022, a balanced portfolio fell double digits. An FIA holder credited 0% that year lost nothing — and started the next up-year from the same, undiminished balance.
The trade-off, stated honestly
Protection isn't free. In exchange for never losing to the market, you give up the market's very biggest years. An FIA usually won't out-run a booming market — what it does is remove the outcomes that derail retirements.
Where it fits in a plan
Most advisors use an FIA for the portion of savings that needs to be there no matter what — a protected floor — while other assets stay invested for growth.