How baby boomers can help fill the income gap
The Baby Boomers — Americans born between 1946 and 1964 — are on the leading edge of one of the most significant generational shifts in our history. According to the U.S. Census Bureau, the number of people 65 and older grew by more than a third in the past decade, the fastest of any age group. This presents both opportunities and challenges for those who help people plan for a financially secure retirement.
Could your baby boomer client be stuck in a tough spot?
People in or nearing retirement may find themselves on the horns of a financial dilemma, stuck between the desire to grow their nest eggs and the need to manage the risk that a market loss will deplete their retirement savings — and reduce the income they can safely generate.
A fixed indexed annuity (FIA) can help resolve this conundrum. FIAs offer the opportunity to earn interest credits based in part on the growth of a market index while providing protection from market loss. They can also be used to create a guaranteed stream of income in retirement.
FIAs and protection from market volatility
For clients who want to grow their savings in expanding markets while seeking protection from market volatility, an FIA may be an important addition to their retirement portfolios. FIAs credit interest based in part on any positive change in a market index, allowing clients to accumulate money without direct exposure to stock or equity investments. When there is a market downturn, the client may receive zero interest credits, but never less than zero. Any interest earned is locked in and cannot be lost due to a future drop in the market.
The interest calculation in an FIA includes a limiting mechanism like a cap rate or participation rate, which allows insurers like Athene to provide this important downside protection.
Help fill income gaps
Along with protection from volatile markets, an FIA is designed to help clients manage other financial risks associated with retirement, including an income gap caused by the possibility of longevity.
Based on information from the CDC’s National Center for Health Statistics, a man reaching age 65 today can expect to live until age 83.1, while a 65-year-old woman can expect to live until about age 85.6. Without a diversified retirement portfolio, retirees may run the risk of losing assets due to market loss or outliving their savings because they simply do not have enough income to last throughout retirement. Plus, if they have to enter retirement earlier than planned, there can be a large income gap before they begin taking required minimum distributions or Social Security benefits.
An FIA can help boomers fill this gap by providing a future source of stable retirement income — a guaranteed lifetime withdrawal payment from an income rider. Many income riders include a charge that is deducted from the annuity’s Accumulated Value; the charge should be taken into consideration when determining if the annuity will be used for growth or income.
Show your client the importance of a balanced strategy
?Retirees face a number of risks that can negatively affect their savings. Exploring these issues with your clients can help demonstrate the importance of a balanced retirement plan, show how an FIA can assist in mitigating retirement risks and allow you to determine if an FIA is a good fit for achieving their financial goals.