Market volatility and a sustained low interest rate environment have created a host of challenges for financial advisors. One of the most daunting is finding new ways to provide their clients with vehicles to securely accumulate wealth and generate lifetime income as they approach retirement age.
Variable annuities (VAs) with lifetime withdrawal benefits have traditionally been one such option, but with carriers scaling back benefits and increasing income rider costs, their relative attractiveness may have diminished for some. Meanwhile, overall capacity in the variable annuities segment appears to have fallen.
Fortunately, insurance carriers have a number of alternatives to variable annuities that provide security with downside principal protection on the contract value. Many new fixed indexed annuities (FIAs), for example, can fit very well into clients’ retirement plans.
FIAs offer a compelling array of benefits in the current environment, including:
- Principal protected from downside market risk
- Tax-deferred interest crediting
- Growth potential better than many other sources of conservative accumulation
- The option of guaranteed lifetime withdrawal benefit riders
For advisors, the value of adding FIAs to their product mix can be substantial:
- It creates an asset with the potential to reduce many measures of portfolio risk. For consumers, especially those approaching retirement age, shaken by market turbulence and uncertainty, this is a crucial consideration. If a client is willing to trade some downside risk for more modest growth potential and less volatility, a FIA may be a good option.
- FIAs provide agents and advisors with a way to help their clients bridge the gap between guaranteed income from sources such as pensions and Social Security, and the amount required to help maintain their desired standard of living.
- Advisors can structure FIAs to provide flexibility in the event of an unforeseen life event or a change in the client’s retirement timeline. Some optional riders are designed to help maximize a client’s potential lifetime income by crediting income benefit base growth daily rather than annually. This is important since life doesn’t wait for contract anniversaries.
As capacity issues and pricing changes continue to affect lifetime income options, FIAs can provide principal protection with growth potential better than many other sources of conservative accumulation‑music to many clients’ ears in uncertain times.