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Offer Clients Annuities

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What You Need to Know

  • Gauging a client's appetite for risk is key.
  • The possibility of market volatility is always there.
  • Fixed indexed annuities don't lose money for the holder just because interest rates fall.

Annuities offer retirees the chance to obtain tax-deferred growth and guaranteed income in retirement, and annuities should always be part of a retirement and income specialist’s tool kit.

If you frequently sell annuities yourself, you know that.

But, amazingly, many advisors don’t discuss annuity products with their pre-retiree clients. For some, it’s because they have become so immersed in the accumulation phase of financial planning that they’ve developed only superficial knowledge of safe money products and best practices.

Others fear pushback from clients who have exposure to annuity myths and negative press. These planners may be reluctant to take the time and effort needed to re-educate clients about annuities’ many benefits.

However, it could be that advisors who don’t consider annuities, particularly fixed-indexed annuities, as part of a sound retirement and income strategy are doing their prospects and clients a disservice.

A Strategy Shift

Successful financial advisors understand that the days of selling a product and never seeing that client again are long gone.

Instead, retirement planning has morphed into more of a full-service concierge model. Today’s advisors must carefully monitor their clients, turn on income riders at the correct times, and ensure cash flow is available when the retiree needs it.

As you clarify your clients’ goals and help them discover a comprehensive roadmap to help attain those goals, you must provide for the possibility (inevitability?) of market volatility. Depending, of course, on a client’s appetite for risk, you should actively adjust their portfolio to make it feel more reliable and safer to them.

The Tools

Fixed-indexed annuities (FIAs) offer a measure of protection against sources of investment volatility, including interest rate risk.

Unlike traditional bonds, FIAs don’t lose money if interest rates drop. Annuity guarantees offer protection of principal and more peace of mind to those entering retirement.

While money held in taxable accounts faces exposure to ongoing taxation, FIAs offer the advantage of tax-deferred growth. Many FIA products are also customizable to address client concerns such as long-term care benefits or creating a legacy.

Even clients in the latter stages of their accumulation phase can add fixed-indexed annuities as an asset class within their portfolios to efficiently mitigate against downside risk while still providing a measure of market participation.

Including a fixed-indexed can impact a range of both downside and upside retirement outcomes. This impact can occur even if a portfolio’s overall standard deviation increases when adding an FIA. Portfolio enhancement often occurs because returns for an annuity don’t follow traditional distribution patterns.

Carefully selecting and including an annuity in a portfolio may raise a client’s wealth accumulation across various outcomes, meaning an annuity has the potential to add a great deal of value.

Summing it up: After considering a prospect or client’s long-term goals, risk tolerance, and tax situation, advisors might want to include annuities to strengthen and protect a portfolio.

Fixed-indexed annuities are often potent weapons for advisors who want to shield their clients’ wealth from multiple erosive forces. FIAs can enhance retirement asset protection by protecting against market downturns and sequence of returns risk. In the critical years leading to retirement, FIAs may help create greater peace of mind for retirees and help extract more lifetime income from their assets.


Michael Masor Michael Masor owns Annuity Market Pro, a Katy, Texas-based retirement income planning firm.