Why Fixed Index Annuities Belong in Every Advisor’s Toolkit
The United States is currently in the midst of one of the most significant demographic shifts in our history. Sometimes referred to as Peak 651, this shift began in 2011 when the first baby boomers turned 65 years old and will continue through 2030. More than 4.1 million Americans will turn 65 annually through 2027, or 11,200 people every day.
This massive demographic shift is fundamentally transforming the retirement landscape as millions of Americans simultaneously transition into retirement. Very few of these people (only about one in 102) participate in a defined benefit pension plan, which has shifted retirement risk away from employers to retirees themselves. And while Social Security is unlikely to change for current or near retirees, it was designed to supplement other sources of retirement income, not fully replace income.
Building a Personal Pension Plan
The good news is that retirees can build their own “personal pension plans” by using a fixed index annuity (FIA). An FIA offers contractually guaranteed lifetime income — even on an asset whose value drops to zero. One thing that sets FIAs apart from other fixed annuities is the opportunity to earn tax-deferred interest based on the performance of a market index, such as the S&P 500 Index.
FIAs feature a unique combination of downside protection and upside potential when compared to variable annuities, registered index-linked annuities (RILAs) and multi-year guarantee annuities (MYGAs). Even with record stock market growth, volatility is high due to geopolitical uncertainty, ongoing wars in Iran and Ukraine and high oil prices. Retirees who are drawing down funds from market-based accounts face the risk that a major market correction could take a bite out of the pool of assets they rely on for income.
By repositioning a portion of their retirement savings into a fixed index annuity to cover essential living expenses (along with Social Security income), your clients can invest their other assets more aggressively to take advantage of potential growth opportunities without the risk of a severe market downturn that could impact their retirement lifestyle.
Given these benefits, it’s not surprising that sales of fixed index annuities are on the rise, more than doubling over the past four years. Meanwhile, sales of variable annuities are declining in terms of market share.
Add FIAs to your Advisor Toolkit
Here are a few reasons why fixed index annuities belong in your advisor toolkit:
They offer upside potential with downside risk protection.
FIAs are an insurance contract, which means your clients’ funds aren’t invested directly in the markets, so there’s no risk of principal loss. Instead, interest is credited based on the performance of a chosen market index, such as the S&P 500.
For example, consider an FIA based on the S&P 500 that guarantees a cap of up to a 10% market return. If the S&P 500 returns 15% annually, your client will be credited with 10% interest that contract year. But if the S&P 500’s annual return is negative, the contract will credit 0%. While no interest is credited in a contract year when the index is negative, there is full downside protection with zero risk of principal loss.
They protect your clients from sequence of returns risk.
As described above, this is the risk of negative market returns occurring when clients are drawing income from their portfolio. The order and timing of negative investment returns can have a big impact on how long a retirement portfolio lasts and your client’s lifetime income strategy.
They allow clients to invest their other retirement savings more aggressively.
It’s generally not recommended that clients place all their retirement assets in a fixed index annuity. Instead, they can use an FIA as a supplemental tool to generate income to meet their everyday living expenses (e.g., mortgage, utilities, insurance, groceries). This is what we mean by creating a personal pension plan.
As a result, clients are freed up to invest their other retirement savings more aggressively since the assets in the FIA are protected from loss. In this way, your clients could potentially capture more growth, which could extend the life of their retirement portfolio.
They help alleviate the biggest retirement fear: Outliving our savings.
According to the 2025 Annual Retirement Study from Allianz Life Insurance Company3, two out of three Americans say they worry more about outliving their retirement savings than they do about dying.
A fixed index annuity with a lifetime income rider is one of the few financial products that can take longevity risk off the table since it provides a guaranteed income stream that cannot be outlived. One-third of respondents in the Allianz study said that putting a portion of their retirement savings into an investment product that provides lifetime income payments, such as an FIA, can help prevent them from outliving their retirement savings.
They allow clients to benefit from annual reset.
The annual interest credited to an FIA is locked in for life and becomes part of the principal. This annual reset amount is fully protected from market volatility, just like the principal that was originally invested. Annual reset is especially beneficial during years when the market index is down or flat since it protects principal and previously credited interest.
Have questions about fixed index annuities or want to talk more about how they can play a role in your clients’ retirement planning strategies and help you grow your practice?
CLICK HERE to start the conversation. We’d love to talk to you.
Sources:
2 https://www.planadviser.com/db-dc-participant-access-update/