Thursday, March 22, 2018

Reducing Market Risk with FIAs

The S&P 500® index was up 19% for the year in 2017. This current run is the second-longest bull market in U.S. history, the longest was 113 months beginning in 1990. We are quickly approaching that record.

Many clients may be very happy with the returns that they have received in their portfolios, but how long will it last? There is no way to predict the future of the markets.  So, if your clients have any concerns over market risk, now may be the time to prepare for potential changes before they happen. History has shown us that markets can change with little or no warning. Now may be the time to safeguard a portion of your clients’ retirement savings with a fixed index annuity where appropriate.

One tactic our producers have been using to help reduce risk in their clients’ portfolios is to take a portion of funds set aside for retirement to generate an income floor for their clients’ basic needs in retirement. Using a fixed index annuity can be a great way to continue to receive a portion of the upside of the market while deferring taxes, protecting principal, providing a death benefit for beneficiaries, and generating an income stream for the future that will be guaranteed* for life. If your client does not like the annuitization option and wants to retain control of their money, the above goals can be accomplished through an income rider, often available at an additional cost. Such a product can help minimize both market risk and longevity risk at the same time.

If your client does not need an income stream, but still wants a shorter-term place to accumulate without market risk, an FIA may still be a viable solution. In this scenario, many producers looking to lower the risk for their clients’ portfolios are looking at shorter-term fixed index products.  While not participating directly in the market, this allows the clients to still benefit from the upside of the market, while protecting against the downside risk. The insurance industry has recently focused on creating new products that strive for accumulation over a shorter duration. We now have five-year fixed index annuities that can be a good place to lower market risk in a portfolio without locking up the money for longer periods of time. The goal here is to protect a portion of the gains, allow that money to continue to grow, and take away the uncertainty and timing issues that can derail your clients’ retirement objectives.

Diversification has historically been the key to maintaining the most economically sound results over time. Consider using a variety of fixed index products laddering durations and benefits in order to satisfy a strong diversified approach to your clients’ accumulation and income goals for retirement.

Contact Ann Arbor Annuity Exchange and we can assist you in finding viable solutions for your clients.

Dina Mestel | Sales Trainer
Ann Arbor Annuity Exchange
Ph: 800.321.3924 x119 | Dir: 734.786.6119

Standard & Poor’s 500® index (S&P 500®) is comprised of 500 stocks representing major U.S. industrial sectors. “Standard & Poor’s®,” “S&P®,” “S&P 500,” “Standard & Poor’s 500,” and “500” are trademarks of Standard & Poor’s Financial Services LLC.

*Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.  

Designed for Financial Professionals.