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Principal protection annuities for volatile markets

In times of market downturns, clients may reach out with concerns about how volatility could impact their retirement savings. Now may be an appropriate time to help your clients learn about fixed indexed annuities (FIAs) and how they can be part of a retirement strategy that offers index-linked growth potential with principal protection from market loss.

How are FIAs different from investing in the stock market?

Some people hear the word 鈥渋ndex鈥� and immediately associate fixed indexed annuities with direct exposure to equities. However, FIAs are insurance contracts, not stock investments. This misperception may prevent people from using FIAs for retirement planning 鈥� missing out on important guarantees, like protection from loss due to market downturns. Stocks don鈥檛 offer the same guarantee.

Another common misperception is that the premium is directly invested in equities that make up the index. It is not. Instead, premiums are invested in the insurance carrier鈥檚 general account. The performance on those premiums is determined by interest credits based in part on any positive change in the index during the crediting period, typically 12 or 24 months.

How could clients鈥� portfolios benefit from a fixed indexed annuity?

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How do FIAs protect my client's retirement savings from loss?

Another misperception 鈥� If the FIA鈥檚 benchmark index goes down in a given year, the contract owner will see a negative return. Actually, fixed indexed annuities protect clients against downside risk. Contract owners may see a zero return, but they鈥檒l never see less than zero. Their premium can鈥檛 be lost due to market downturns.

Fixed indexed annuities come in many varieties, allowing clients to balance growth in expanding markets with protection in contracting ones. When they鈥檙e part of a well-diversified portfolio, a FIA can provide solutions for a range of retirement issues.

• Opportunities for growth 鈥� Since FIAs are linked to the performance of an external market index, the annuity鈥檚 value can grow by earning interest credits based in part on a positive change in the underlying index. The amount of interest a client can earn with a FIA typically fluctuates depending on the interest crediting method in the annuity contract鈥檚 terms, usually a cap rate, spread fee or participation rate. 
  • A cap rate, common with crediting strategies, allows a client to receive credits up to a cap rate. A FIA with a 4% cap, for example, will receive an interest credit of 4% whether the underlying index returns 4%, 8% or 12%.
  • A spread or margin is deducted from an index return. So, a FIA with a 2% spread will receive an interest credit that鈥檚 two percentage points lower than the index鈥檚 return. If the underlying index returns 4%, for instance, the contract owner will receive a 2% interest credit; 6% if the index earns 8%.
  • With some indexes, clients can receive credits of a set percentage, known as the participation rate, of any stock market gain. For example, if the participation rate is 50% and the index increases by 14%, the contract owner would receive a 7% credit for that year.
• Asset protection 鈥� Although interest credits a client may earn varies, any gains they do earn are locked in each Contract Anniversary. Any growth already received in the Accumulated Value won鈥檛 be lost, even if the underlying index declines in the future.
• Guarantees 鈥� When markets decline, a FIA鈥檚 characteristic zero-return floor, provides protection from loss. The risk of a market drop is transferred to the insurance carrier. If the stock market has a down year, the contract owner would be credited with zero return 鈥� but nothing lower than zero 鈥� for that time period. 

Why should my client consider a FIA?

Because FIAs help insulate from market volatility, it may be easier for clients to handle market downturns, knowing they may eventually benefit from market gains. The guarantees fixed indexed annuities offer often give clients the confidence to keep their money in place during market fluctuations.

Fixed indexed annuities have several features that can be valuable for individuals, couples, families, legacies and more. With your help, clients can select features such as: 

• Guaranteed fixed-rate accounts
• Guaranteed death benefits
• A minimum interest credit rate
• Guaranteed liquidity features
• Guaranteed lifetime income streams

What are your client鈥檚 long-term goals?

As in all retirement planning, one size doesn鈥檛 fit all. When considering FIAs for a retirement strategy, financial professionals should fully understand their client鈥檚:

• Goals
• Level of accumulated assets
• Other sources of guaranteed lifetime income
  • Social Security benefits
  • Pensions
  • Real estate income
  • Income from other assets 

Financial professionals should consider a client鈥檚 projected income tax bracket for the year they expect to take money from their annuity contract. If the client wants to withdraw funds before age 59陆, the impact of any tax or other penalties need to be factored into their plans.

Understanding what FIAs offer can help clients retire with confidence

Your risk-averse clients may prefer a FIA for a higher protected growth opportunity and flexible portfolio management. Since FIAs can also provide reliable income in retirement, these clients may feel more confident exploring other options for the rest of their portfolio if they allocate a portion of it to a FIA.

You may need support to fully understand and explain a FIA鈥檚 features and benefits to clients. Issuing insurance carriers may offer consumer-focused education, tools and other content to help answer questions and explain the value FIAs can help provide before and during retirement.

Insights on 麻豆传媒 Connect. Tips, tools and resources to grow your business by helping clients retire with confidence.

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.

The S&P 500^庐 Index (the 鈥淚ndex鈥�) is a product of S&P Dow Jones Indices LLC or its affiliates (鈥淪&P DJI鈥�) and has been licensed for use by 麻豆传媒 Annuity and Life Company and 麻豆传媒 Annuity & Life Assurance Company of New York (collectively, 鈥溌槎勾�媒鈥�). S&P^庐, S&P 500^庐, SPX^庐, US 500, The 500, iBoxx^庐, iTraxx^庐 and CDX^庐 are trademarks of S&P Global, Inc. or its affiliates (鈥淪&P鈥�); Dow Jones^庐 is a registered trademark of Dow Jones Trademark Holdings LLC (鈥淒ow Jones鈥�). 麻豆传媒鈥檚 products are not sponsored, endorsed, sold or promoted by S&P DJI, Dow Jones, S&P, or their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Index.

Guaranteed lifetime income is available through annuitization or an income rider. Income riders may be built into the contract or optional for a charge.

麻豆传媒 does not provide tax, financial or legal advice. Taxpayers should consult their own independent qualified professionals as to their personal circumstances.

Although fixed indexed annuities offer principal protection from market downturns, the deduction of applicable charges could exceed any interest credited, resulting in the loss of principal.