Index-based annuities offer growth potential, loss protection and customization suitable for qualified retirement plans.

Investors have many possibilities by including index-based annuities as a part of their retirement plans. In a best-of-many-worlds scenario, consumers can realize gains, protect against market volatility-induced losses, specify the time horizon of their exposure, and enjoy distributions that can’t be outlived, all with the issuing insurance company managing the overall risk.

Index-based annuities provided by insurance companies present retirement-seeking investors many of the upside possibilities without direct exposure to the volatility of the market, in contrast to equity-based assets. Additionally, investors have the opportunity to lock in gains, avoid the give-back that can accompany a market retreat and even change the time horizon along the life of the annuity. Essentials to know about index-based annuities include:

1. By definition, and especially in the financial industry, an index is an aggregate that leverages higher performers and mitigates the risk of lesser performers. There’s strength in numbers, with more than 70% of annuity and life insurance products following the S&P 500, the bellwether of the financial services industry.

2. Annuities and life insurance are commonly used as a hedge, complementing equity and bond retirement investments. Different from stocks and bonds, though, any risk with annuities is through the insurer who issues the contract, and not with the equity market or the companies that comprise the index.

3. Investors can specify performance periods for index-based annuities, that commonly include month to month, one-year and two-year periods. In a stair-step process, indexed gains at the end of a period are locked in and become the basis for the next period, although dividends are not paid, and participation in the gain may be less than 100%. Much different than many risk/reward opportunities, index losses in a period do not reduce the contract holder’s account balance; that remains the same. Additionally, investment periods can be changed on the anniversary dates of the renewable contract, allowing for anticipated or unexpected index dips and recoveries.

4. Investors have the flexibility through contract riders to provide income and death benefits. Specifications can include guaranteed withdrawals for the life of a contract holder, something that cannot be outlived. And in an era when annual Social Security cost-of-living allowances cannot be assumed (no COLA was paid in 2010, 2011 and 2016, according to the Social Security web site), investors can schedule a benefit increase independent of Social Security’s annual determination.

Index-based annuities can be a beneficial retirement plan component, offering elements of stability and flexibility to investors already fearful of repeating the 2008 financial collapse. Many investors see annuities as more suitable for qualified, rather than non-qualified plans, and especially appreciate the upside opportunity without the risk for principal reduction within a benchmark measure such as the S&P 500. As with any opportunity, investors should seek a clear understanding of any and all fees that may accompany a retirement plan vehicle and its associated benefits.

Syndicated financial columnist Steve Savant interviews top retirement specialists in their field of expertise. In this segment we’re talking to certified financial planner and investment adviser Allen Carter. Right in the Money is a financial talk show distributed in daily video press releases to over 280 media outlets and social media networks.