Fixed Index Annuities: A fit for younger clients, too?
Annuities have traditionally been used as income-generating products targeted to clients who are nearing or in retirement. Fixed index annuities (FIAs) in particular enable retirees to build a “personal pension plan” via contractually guaranteed lifetime income, even if the annuity’s value falls to zero.
However, younger clients may also be good candidates for annuities. According to a recent study conducted by Nationwide, more than half of Millennials (63%) and Gen Xers (54%) say they are open to investing in an annuity or similar guaranteed income product. This may present a unique opportunity for you to position FIAs as early-stage financial planning tools for younger clients.
With a fixed index annuity, principal is protected in the event of market downturns. But that’s not all: Clients can also earn tax-deferred interest based on the performance of a market index, such as the S&P 500.
Viable Investment Alternatives
FIAs can be positioned to younger clients as viable alternatives to traditional fixed-income products, such as bonds. The benefits of downside protection along with upside potential may be just as appealing to younger clients as they are to those nearing retirement. Many of these clients lived through the Great Recession and its aftermath, which has made them leery of investments and the market.
Uncertainty surrounding the future of Social Security is another reason why many young clients may be more receptive to including FIAs as part of a diversified investment portfolio. According to the 2026 Social Security Trustee’s Report, the Social Security trust fund will run out of money by the end of 2032, or just six years from now. As a result, many young people are concerned that there may be no money left in the fund (or that they may face drastically reduced benefits) by the time they retire, so they need to create their own retirement income stream.
Also, fewer young people today have access to a traditional defined benefit pension plan that would provide steady income during retirement. This is forcing them to take responsibility for their own retirement financial security by creating a diversified, long-term investing plan that generates retirement income.
Increased Liquidity with FIAs
One hesitation among some young people when it comes to annuities is the fear that they won’t be able to access their money for many years. However, there are new FIA products on the market that feature shorter surrender charges, which gives young clients more liquidity to reposition their assets in light of market or interest rate changes.
When presenting annuities as an investment option for younger clients, your goal should be to position them alongside stocks, bonds and other securities as part of a well-balanced, long-term portfolio. FIAs may serve as a non-correlated asset to complement other investments by providing downside portfolio protection and reducing volatility.
Biggest Benefits of FIAs
June is National Annuity Awareness Month, which makes now a good time to discuss the potential benefits of FIAs with clients of all ages. Here are 5 of the biggest benefits of fixed index annuities:
Protection from sequence of returns risk. This is the risk of negative market returns occurring either late in a client’s working years or early in their retirement, especially as they begin to draw 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 a client’s lifetime income strategy.
Upside potential with downside protection. As discussed, FIAs offer full principal protection along with the potential for accumulation too. An FIA is an insurance contract, not a security, so money isn’t invested directly in the markets. Instead, interest is credited to clients based on the performance of their chosen market index, up to a “cap” or “participation rate” stated in the contract.
Removes the fear of outliving retirement savings. According to the 2026 Annual Retirement Study from Allianz Life Insurance Company, two out of three Americans say they worry more about outliving their retirement savings than they do about dying. An FIA with a lifetime income rider reduces this worry because it provides a guaranteed lifetime income stream that your clients cannot outlive.
More investment flexibility. The guaranteed income aspect of FIAs gives clients the flexibility to invest other portfolio assets more aggressively to potentially generate higher returns. This could allow clients to capture more growth, which could extend the life of their retirement portfolio.
Take advantage of the annual reset. With FIAs, the interest that’s credited each contract year is locked in for life and becomes part of the principal. Just like the original principal, this amount is fully protected from loss due to a market downturn. The annual reset is especially beneficial during years when the market index is down or flat.
Give me a call or shoot me an email if you’d like to talk more about how to present fixed index annuities to younger clients, or about the benefits of FIAs for your clients in general.