FIAs Have a Bright Future

As investors seek safer waters in volatile times, many are turning to fixed indexed annuities.

By Doug Wolff

For all the focus that goes into determining how much to save for retirement — and the strategies that can help accumulate this figure — the issue of how to grow and maintain these savings as people near retirement tends to go overlooked.

Presently, there is a perfect storm of factors that are compelling financial professionals to rebalance their client portfolios. Mostly notably, market upheaval due to the coronavirus has investors even more vigilant to seek safer waters and protection from downside risk.

However, this crisis also comes as many clients, only a few years from retirement, were already looking for strategies to preserve their principal while still providing some potential for interest.

Faced with this rapidly changing retirement planning environment, it’s a good time to take a closer look at how Fixed Index Annuities (FIAs) may provide a solution

A Brief Overview

FIAs offer a variety of potential advantages to consider. They are a tax-deferred, long-term savings product, for one. They also represent a unique retirement solution that often offers multiple index crediting strategies, in addition to a fixed account option, that can help protect and grow account values even in turbulent times like these.

In addition, FIAs can serve as a bond fund alternative that offers with some equity-index linked interest potential. Unlike bonds and bond funds, when interest rates go up, the value of FIAs does not go down. This provides protection against potentially rising interest rates that bonds cannot match.

FIAs offer tax-deferred, interest potential from index accounts based on equity-focused market indexes. However, they have a floor, meaning clients don’t lose their principal, and their previous interest credits are protected too. As clients read headlines about potential market downturns, they can rest easy as they are not actually invested in the markets.

Many clients may need to rebalance their portfolios this year to derisk given current market conditions and/or as they approach retirement. FIAs can help them balance their portfolios that require some recalibration: long-term risk tolerance versus target asset allocations. An FIA can be positioned to assist with its shift from equities to safer vehicles as well, giving clients interest potential while controlling for risk.

FIAs are being re-discovered as a tool for accumulating and securing savings to and through retirement — especially during times of uncertainty.

WHY FIAS IN THE CURRENT ENVIRONMENT?

FIAs are being rediscovered as a tool for accumulating and securing savings to and through retirement — especially during times of uncertainty. FIAs can function as a separate, non-correlated asset class in relation to equities. This allows for diversification of client portfolios away from equities while still providing potential for interest credits linked to a financial index.

Overall, FIAs offer client portfolios a powerful combination of tax-deferred accumulation potential, no downside risk and diversification. And while FIAs can be looked at as a “safer” asset class, your clients don’t have to give up all accumulation potential by rebalancing to them. No wonder FIA sales shot up 25% in 2019, according to Wink Research.

The issue of continuing to accumulate and protect clients’ lifetime savings as they near retirement is often overlooked in today’s marketplace. Currently, multiple factors are leading financial professionals to rebalance client portfolios, seeking accumulation potential but with protection from downside risk. The need is even greater for clients only a few years from retirement. As demand has been shifting to FIAs that focus on accumulation and protection from market risk, we see these flexible products as likely one of the fastest-growing categories looking ahead.

And given current conditions, we believe they can be more valuable than ever in volatile market environments and for helping upcoming retirees transition into retirement securely and confidently.

Security Benefit Life Insurance Company is not a fiduciary and the information provided is not intended to be investment advice. This information is general in nature and intended for use with the general public. For additional information, including any specific advice or recommendations, please visit with your financial professional. Security Benefit Life Insurance Company issues annuities in all states except New York.

Doug Wolff is president of Security Benefit Life Insurance Company.