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How fixed indexed annuities can help provide certainty for retirees

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Market volatility and low interest rates could send many people to their financial professionals to reevaluate their retirement readiness. Clients seeking more financial confidence may be interested in how the unique combination of features in a fixed indexed annuity (FIA) can help benefit retirees. Because a FIA is an insurance product, not an investment, individuals with a FIA can approach retirement with greater confidence, helping them be:

  • less concerned with volatile markets
  • less anxious about outliving their assets
  • more willing to pursue growth opportunities

Protection from market volatility

"Some clients on the accumulation side want to have no risk of market loss, plus high interest earning potential. There are not a lot of products offering that combination of benefits," states Chris Grady, Executive Vice President head of retail sales at Athene. "Financial professionals can do a needs and benefits analysis to see if a FIA fits into their client’s retirement portfolio."

An appealing benefit of FIAs is the security offered by a zero-return floor. This is a contractual guarantee that provides protection from loss due to stock market downturns. FIAs also offer the opportunity to earn interest credits based in part on any positive change in a market index without direct exposure to equities. 

"FIAs allow clients to balance growth in expanding markets with protection in contracting ones,” adds Grady. “In addition, gains are locked in and cannot be lost to any future downturn.”

Income stream

According to the 2023 Retirement Confidence Survey, 46 percent of retirees leave the workforce earlier than planned, potentially creating a large gap between retirement income and how long their money will last. 

When clients add a FIA to their portfolio, they can create a guaranteed income stream to supplement Social Security benefits, pensions or other retirement income sources. After purchasing a fixed indexed annuity, an individual can let it accumulate, then turn on the income stream in retirement to start receiving a monthly check for life. 

When is a FIA appropriate?

Financial professionals are the best guide for individual situations. As a general rule of thumb, candidates for a fixed indexed annuity are often individuals or couples whose family and career-building years are behind them. 

"In my view, the ideal buyer is someone transitioning from raising a family to thinking about 'real' retirement planning — including long-term care planning, legacy planning and charity planning," says Grady. 

FIAs should be:

  • used with the advice of a financial professional
  • in the context of a well-diversified portfolio
  • in alignment with individual goals

Flexible solutions

Fixed indexed annuities can help provide flexibility for married couples who want to provide security for a surviving spouse. “As the sole primary beneficiary, a spouse can choose to continue the contract by becoming the sole owner and sole annuitant. If it's non-qualified money and the spouse doesn’t need the income, the assets can be left to compound with tax-deferred growth. If it turns out the spouse needs the money, the FIA’s income stream can be turned on," states Grady. He also notes that required minimum distributions must be taken from tax-qualified contracts beginning at age 72, (73 if you reached age 72 after December 31, 2022).*

Diverse financial planning tool

Contrary to what some might think, FIAs aren't only appropriate for the risk averse. “They can also have a place within portfolios of more aggressive investors,” says Grady. High-net-worth individuals can utilize FIAs to limit their exposure to volatility in the conservative portion of their portfolios, giving them the freedom to take more investment risk elsewhere.

"My personal financial professional recognizes that I have a higher risk propensity than some others,” says Grady. “I'm a sophisticated investor with the personality to take more risk than the average investor. I have a portfolio in global markets — yet I also own annuities.” 

Fixed indexed annuities provide certainty that helps bolster Grady’s ability to make more aggressive investments with the rest of his portfolio. FIAs can help solve for a diverse range of financial planning needs, whether someone is a corporate careerist, small business owner or municipal employee.

"Municipal employees tend to be very familiar with their pension benefits. Their needs will be very different from those of business owners who typically have a lot of liabilities or the individual who has a corporate job," shares Grady.

A FIA can help provide each of these clients the opportunity for:

  • growth potential
  • principal protection
  • guaranteed income

What’s next?

Athene can supply you with the resources you need to help identify the appropriate product for each client. Follow up with us to request consumer-facing educational materials and illustrations that can help you make the case to clients that a FIA may be a good fit.

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*The IRS requires that individuals take a required minimum distribution (RMD) each year once you reach age 72 (age 70½ if you were born before July 1, 1949 or age 73 if you reach 72 after Dec. 31, 2022).

Indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. Market indices may not include dividends paid on the underlying stocks, and therefore may not reflect the total return of the underlying stocks; neither an index nor any market-indexed annuity is comparable to a direct investment in the equity markets. 

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