What You Need to Know
- Annuities can offer income guarantees.
- COVID-19 has increased uncertainty.
- The author says advisors who can help clients with annuities have a way to address that new uncertainty.
For many clients, retirement planning means facing the unknown — from how long they’ll live, to how long their savings will last. COVID-19 created even more uncertainty, as one-in-five American adults said the pandemic had forced them to delay their retirement or no longer retire at all, according to Nationwide’s 2021 Tax-Efficient Retirement Income survey.
With so many Americans uncertain about their ability to retire and unsure about what comes next, advisors and financial professionals play an important role, on the practical level and the emotional level as well. In fact, according to our sixth annual Advisor Authority study, conducted in 2020, the number-one reason investors work with an advisor or financial professional is to feel more confident in their financial future, and the number-two reason is concerns about saving enough for retirement.
To help clients have the confidence they need to prepare for the unknown, consider a holistic financial plan that includes the “retirement planning trifecta” — protection, guaranteed income and the power of tax deferral.
The Importance of Protection
According to Nationwide’s advisory authority study, losses due to the pandemic, protecting assets and managing volatility were investors’ top three financial concerns. While equity markets have recovered since the pandemic, protecting a portfolio against future market downturns and volatility could mean the difference between retiring as planned — or waiting for years. Yet only 64% of investors had a strategy to protect their assets against market risk, compared to 91% of advisors and financial professionals. Clients could use your help.
Annuities can be an effective option to help clients prepare for retirement, providing the upside potential they want, to help them accumulate more, and the downside protection they need, to preserve their portfolio. Because all guarantees and protections are subject to the claims paying ability of the issuing insurance company, it’s important to identify an insurer with superior ratings and financial strength.
To help balance growth and protection, registered index-linked annuities (RILAs) may work for clients with a range of different risk profiles. RILAs offer clients upside potential based on the growth of an underlying stock market index. These could include traditional indices such as the S&P 500 or Nasdaq 100, as well as specialty indices that dynamically allocate assets, manage volatility and use other unique strategies. This is balanced with different degrees of protection against market risk — including a buffer for moderate to aggressive clients, or a floor to provide a more defined level of protection for conservative to moderate clients.
The Need for Guaranteed Income
Nationwide’s advisory authority study also revealed that protecting against outliving savings and generating guaranteed income in retirement were top priorities for investors, with four out of five saying they had a strategy to do both. But citing Social Security and defined benefit pensions plans as their top two solutions, investors may have a blind spot — and face a shortfall — when it comes to meeting their retirement income needs.
To help ensure clients won’t outlive their savings in retirement, annuities are the only product that can provide guaranteed income for life. Annuities can supplement other sources of retirement income or help bridge an income gap before Social Security starts. Using annuities to generate income and manage market risk can allow clients to continue investing a portion of their portfolio more aggressively, for greater growth potential.
According to our advisory authority study, 84% of advisors and financial professionals said the use of an annuity with an income guarantee is important for supporting a sustainable withdrawal rate. Recent analysis from Goldman Sachs Asset Management also suggests that allocations to annuities with a guaranteed lifetime withdrawal benefit (GLWB) can create more income with less risk than systematic withdrawals alone.