2024 Planning Outlook

Advisors embrace annuities in response to client income-fears

by Kurt Auleta

Fall has brought significant challenges. Student loan interest has resumed, mortgage rates have surged to a 23-year high, and the S&P 500 experienced its worst month of the year. Inflation is not a transitory phenomenon as interest rates continue to hover at two-decade highs, and with the Fed hinting at further increases by year-end. Looking ahead to 2024, the consensus among policymakers and financial advisors is that rates will likely remain well above pre-pandemic levels. This also makes yields on many fixed vehicles, including cash, very competitive with yields on equities.

According to a 2023 retirement confidence survey from the Employee Benefit Research Institute, four in ten workers and three in ten retirees are not confident their money will be able to keep up with inflation in retirement, a significant increase compared with the one-third of workers who felt this way last year.

Given this unprecedented interest rate environment, marked by severe declines across stock sectors and major bond and credit indices, people are now reassessing their long-term financial strategies and seeking more stable investment options beyond, or enhancement to, the traditional 60/40 portfolio mix.

For younger investors, traditional, long-term strategies should become an emphasis again, including reinvesting dividends, dollar cost averaging, and maxing out their available retirement plan options like 401(k)s. Mature investors on the other hand, should consider several other options.

Financial Advisors Look Towards De-Risking Options

When exploring alternative investments, there are several fixed income options that offer downside protection. Annuities, for example, play a pivotal role in de-risking portfolios by guaranteeing principal, offering potential interest accumulation, and providing a reliable income source.

A 2023 Insured Retirement Institute survey highlights that clients of financial advisors are now prioritizing the ability to maintain income and protect against investment loss over maximizing gains.

Given this heightened concern with the viability of long-term savings, two annuity types, Multi-Year Guaranteed Annuities (MYGAs) and Fixed Index Annuities (FIAs), are strong options for portfolio planning.

MYGAs feature fixed interest rates and are designed for long-term holdings, often delivering higher interest rates compared to other fixed income savings vehicles. They can be considered a more stable option than bonds, which can be vulnerable to price fluctuations. Additionally, MYGAs offer the combined benefits of principal guarantees and tax-deferred accumulation.

FIAs and bonds share similarities, including interest potential. However, FIAs stand out by providing the potential for credited interest from diverse return sources, including equity and dynamic multi-asset strategies. FIAs also provide the flexibility to diversify among index accounts based on multiple indexes, adapting to changing market conditions. Like MYGAs, they safeguard principal and enable tax-deferred accumulation.

Advisors can leverage both, splitting the fixed income portion of a portfolio between bonds, and a combination of a MYGA and FIA. The MYGA locks in a current rate for the initial guarantee period, while the FIA offers up the longer-term interest potential linked to financial market indices. This approach can also help avoid some common “flight to safety” mistakes like investing in commodities or other instruments that tend to be volatile.

Annuities: Key To Long-Term Financial Security

Financial advisors and clients alike are recognizing the advantages of annuities in helping achieve retirement security. In the second quarter of 2023, total annuity sales increased by 12% year-over-year to reach $88.6 billion, with record-breaking sales for FIAs, as reported by preliminary results from LIMRA’s U.S. Individual Annuity Sales survey.

The appeal of annuities extends further, as revealed by a 2023 American Council of Life Insurers survey, which found that 86% of participants who already owned annuities are interested in buying more.

Looking towards the rest of the year and into 2024, advisors should consider helping clients understand how annuities can be a game-changer for their financial planning. By reducing portfolio risk from all-weather protection and tax-deferred interest potential, annuities help safeguard their retirement savings.

About Security Benefit

Security Benefit Corporation (“Security Benefit”), through its subsidiary Security Benefit Life Insurance Company (SBL), a Kansas-based insurance company that has been in business for more than 131 years, is a leader in the U.S. retirement market. Security Benefit, together with its affiliates, offers products in a full range of retirement markets and wealth segments for employers and individuals and held $47.8 billion in assets under management as of December 31, 2022. Security Benefit, an Eldridge business, continues its mission of helping Americans To and Through Retirement®.
SBL issues annuities in all states except New York.
Services are offered through Security Distributors, a subsidiary of SBL and SBL is wholly owned by Security Benefit Corporation (“Security Benefit”).
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