Harnessing Fixed Annuities

What You Need to Know

Think about what the client needs.
Consider what other resources might be available.
Remember the income taxes.

As financial advisors and retirement planners, one of our most critical responsibilities is helping clients plan for a secure and comfortable retirement.

In pursuit of this goal, fixed annuities can be a powerful tool to provide a stable and predictable income stream during retirement.

For advisors who are just starting to work with annuities, here’s a look at the benefits of fixed annuities and an outline of a step-by-step approach to incorporating them into your clients’ retirement income planning.

The Product

Fixed annuities are insurance products that offer guaranteed income for a specific period or for life (for either single or joint life).

They are designed to protect against market volatility and provide a steady or potentially growing income stream during retirement.

By exchanging a lump sum for periodic payments, clients can secure a reliable source of income that can help cover essential expenses, medical costs, potential Social Security cuts and lifestyle choices during retirement.

How to Use Fixed Annuities in Planning

Here’s a strategy for combining fixed annuities with other planning options.

1. Identify your client’s retirement goals and income needs.

Begin by thoroughly understanding your client’s retirement goals and income requirements.

Consider their desired retirement age, estimated life expectancy, anticipated healthcare costs, and desired legacy for their loved ones.

This information will lay the foundation for crafting an appropriate retirement income strategy.

2. Assess the client’s risk tolerance and time horizon.

Determine the client’s comfort level with market fluctuations and the client’s capacity to absorb potential losses.

Fixed annuities are particularly beneficial for risk-averse individuals who prioritize stable income over potentially higher returns from market-based investments.

3. Determine the annuity allocation.

Once you clearly understand your client’s retirement goals and risk profile, assess the appropriate allocation of fixed annuities within their overall retirement portfolio.

Consider existing retirement savings, other income streams (pensions, Social Security, rental income, etc), and any market-based investments.

Ensure that the annuity allocation aligns with your client’s risk tolerance while also optimizing their overall retirement income.

4. Choose the right annuity.

With a myriad of annuity products available, selecting the right one can be daunting.