For investors, the last twenty years have been something of a roller coaster.
The dot-com bubble, 9/11, the financial crisis, and now the recession associated with the COVID-19 pandemic have roiled stock markets enough to make any investor apprehensive about the consequences of the next big crisis — whatever it is and whenever it comes.
That concern is even more acute for people near retirement, who, after a lifetime of work, want a reasonable measure of assurance that their accumulated assets will last for the remainder of their lives, and, possibly, leave an estate to pass on to their heirs or a cause close to their hearts.
How financial professionals can help clients navigate this uncertain and complex path, though, can be a challenge.
If you have already been helping clients with annuities, you know that annuities can play an important role in helping clients balance the need for asset growth with the need to protect asset value.
If you are new to the use of annuities in retirement income planning, here’s a look at strategies that can help clients protect what they have accumulated, while still helping them address the possibility that their savings will lose value to inflation or face depletion.
What to Do in the Face of Uncertainty
So, how do you help your clients think about retirement in the face of uncertainty?
No two retirement goals are the same, but most people have similar priorities: Preservation of wealth, regular income, and keeping up with inflation.
This strategy has traditionally meant a combination of high-quality fixed income, an allocation towards equities, some cash, and other assets like real estate or precious metals.
But equity markets, as we’ve seen, can be too volatile to rely on completely going forward. The other primary traditional retirement asset — fixed income — is unsatisfying for a different reason: Yields on the safest assets, like 10-year U.S. Treasury bonds, have been at historic lows for years, and there’s little reason to think that will change soon. Even high-yield or “junk” bonds are offering historically small risk-adjusted returns.