The past few weeks have witnessed a level of market volatility unlike anything we’ve seen in quite awhile. Major stock indices plunged after President Trump officially announced his tariff plan on April 2 and have swung wildly in the days since. If you work with retirement-age clients, now is a great time to go ‘back to basics’ by reminding clients about the specific benefits of utilizing fixed index annuities for retirement. FIAs can help your clients especially in volatile markets because:
- Market downturns are common, not a rarity.
- Retirement-age investors face a unique risk that others do not.
- More retirement income means more retirement security.
- Retirement is about fulfilling dreams and goals, not sweating the stock market ticker.
Let’s dive deeper into each of these points to understand why and how to position FIAs to guide your clients during volatile market cycles.
Bull Market Lulls Some Investors
The stock market has been on an incredible run lately with the Dow Jones Industrial and S&P 500 both reaching all-time highs in recent months. This may have lulled some clients into a false sense of security. In reality, market downturns occur far more often than many investors realize. For example, between 1950 and 2025, a market drawdown of at least 10% occurred in more than half of all calendar years while a market drawdown of at least 5% occurred in nine out of 10 calendar years. Despite this, stocks finished with gains in three out of every four years.
Volatility can be more concerning for clients who are nearing or in retirement due to what’s referred to as sequence of returns risk. During the asset accumulation stage of life, the order of investment gains and losses doesn’t affect the portfolio, assuming there are no additions or withdrawals. The average return will remain the same regardless of variations in returns during specific years.
But this changes once clients reach retirement because withdrawals compound market losses, making it more difficult and taking longer for the portfolio to recover. This is especially true if losses occur early in the sequence. For example, if a portfolio suffers a 10% loss and a retiree is withdrawing 5% of the assets annually, it would take a 44% return to recover the loss. If the portfolio suffers a 20% loss, recovery would require a 62% return and if it suffers a 30% loss, recovery would require an 85% return just to break even.
ROI: Reliability of Income
Clients in or nearing retirement have more to lose from a bear market than they have to gain from a bull market. For them, the meaning of the acronym ROI should change from the commonly cited Return on Investment to something else: Reliability of Income. Predictability is more important for these clients than potential. The main goal for these clients is to lower the risk of running out of money in retirement, which statistically has never been higher than it is now.
One of the best ways to achieve this predictability is with fixed index annuities. FIAs offer some upside potential by crediting interest based on a market index, such as the S&P 500, but their main value for retirees is principal protection and predictable income. Lifetime income riders offer a contractual promise that a certain amount of income will be paid to retirees for the rest of their lives, regardless of market performance.
FIAs can help remove some financial uncertainty from the equation for retirees. Instead of making assumptions about retirement income based on market performance, retirees can rest assured that:
- Their principal as well as any credited interest earned each year are completely protected from the swings of the market. The worst “return” in an FIA in any given year is zero. And going back to basics, we need to remind clients that when planning to live off their accumulated assets, “zero is your hero.”
- If they have purchased a lifetime income rider, clients will receive a certain amount of income for the rest of their lives — even if the account value of their annuity were to be drawn down all the way to zero. In this way, purchasing an FIA is like planning for a worst-case financial scenario.
A Hypothetical Example
Consider John, who is 55 years old and wants to retire in 10 years at age 65. John decides to purchase a $250,000 FIA that features an income rider with a 7.2% annual compounding rollup during deferral and an income payout percentage of 6.78% at age 65. When he turns 65, the income value of the FIA will be $501,058 and John can withdraw $33,972 annually for the rest of his life. There’s no other financial product in the marketplace that can provide this much predictable, contractually guaranteed income.
Surveys of retirees have indicated that 61% say their #1 fear in retirement is running out of money. Fixed index annuities can help reduce or eliminate this risk in a unique way.
A Retirement Paycheck
Fixed index annuities can give clients permission to enjoy their retirement without constantly worrying about the financial markets and whether they’ll have to adjust their lifestyle to avoid running out of money. One way to look at an FIA is as a “retirement paycheck.”
When comparing retirees with similar total retirement wealth, those whose portfolios are more heavily weighted toward income spend significantly more money each year than others. Retirees with 60-80% of income as a percentage of total retirement wealth spend a median of $121,162 per year. This compares to $116,673 for retirees with 40-60% of income as a percentage of total retirement wealth and $89,773 for retirees with 20-40% of income as a percentage of total retirement wealth.
In addition, FIAs are tax-deferred, which helps a portfolio last longer. Taxes can have a meaningful impact on a portfolio’s long-term growth. For example, if John invested $500,000 and earned a tax-deferred annual return of 7.5%, his portfolio would be worth $2.12 million after 20 years. But the portfolio’s value would fall to $1.76 million with just a 1% income tax and to $1.46 million with a 2% income tax. This makes it critical for retirees to consider strategies designed to improve after-tax returns, such as investing in fixed indexed annuities.
Give me a call at 404-364-2598 or shoot me an email if you have questions about fixed indexed annuities or want to talk more about how they can help your clients manage market volatility.