Advisory & The Urgency Of Crisis

Protecting Your Clients’ Retirement Portfolios in Uncertain Times

How RIAs, fee-based and fee-only advisers can help clients find stability amid market volatility

by Doug Mantelli

Mr. Mantelli is vice president of RIA Strategy at Pacific Life. Visit www.PacificLife.com.

These days, workers across the globe are dealing with uncertainty in nearly every facet of their lives, from health and jobs, to the condition of the economy and their personal retirement savings. With the recent losses and continuing unpredictability of the market, it’s not surprising that Americans are now more concerned about the value of their investments than they were before the coronavirus crisis.1 However, despite their trepidation about market volatility, 66% intentionally have not touched their stock or stock-related investments according to one study.2

While this would seem to be good news simply because people are opting not to lock in losses, it still leaves many anxious about what to do. That can lead to inaction, which doesn’t help their financial security—such as not making additional contributions to their retirement plans or making additional contributions but keeping them in cash.

If you’re looking for a way to offer possible solutions that provide lifetime income, some stability, and even security, you have options. In fact, some Registered Investment Advisers (RIAs), fee-based and fee-only advisers are incorporating new advisory solutions that may reduce portfolio risk without sacrificing the opportunity for growth, which may help clients get off the fence and back into the market.

Possibilities to Consider

In the midst of uncertainty—in their lives and in the market—clients often look for ways to gain some predictability and security. For solutions that can help your clients feel more confident in their retirement strategies and future income, you may want to consider commission-free advisory annuities as a sleeve in client portfolios. Here’s why:

  • Annuities offer protected income. They are one of the only financial vehicles that can be turned into regular income payments clients cannot outlive, providing an important retirement income floor that can help the planning process.
    They can protect loved ones too. Annuities help protect wealth transfers for your clients and their beneficiaries through a death benefit, which typically pays out if the annuity owner passes away before taking income.
  • Annuities are tax-deferred. That means, when the markets go back up, the earnings won’t be taxed until they are withdrawn, so annuities can be a way to help your clients make the most out of tax-inefficient assets.

While annuities aren’t for everyone, they can provide an option for some clients. With any annuity, your clients should consider the fees and charges, before they purchase one. Because annuities are intended for retirement, if you are younger than age 59½, an additional 10% federal tax may apply when you take withdrawals. Withdrawals of taxable amounts are subject to ordinary income tax. For nonqualified contracts, a 3.8% federal tax may apply on net investment income.

What Can Specific Annuities Do for Your Clients?

There are several types of annuities available in the marketplace today. Not all of them are right for every client. However, if you’re looking for specific features that can help your clients overcome an aversion to investing, stay in the market despite volatility, or supplement retirement income, there are a few options to consider.

When clients wanted a safe place for their money that provided some growth, we used to turn to bonds. But these days, yields are unattractive in nearly all fixed income asset classes. And what used to be considered “safe” may not be anymore...

If they’re looking for a safe alternative to bonds, consider a fixed indexed annuity
When clients wanted a safe place for their money that provided some growth, we used to turn to bonds. But these days, yields are unattractive in nearly all fixed income asset classes. And what used to be considered “safe” may not be anymore, as many clients may have been surprised to see the value of their bonds and bond mutual funds lose value during periods of extreme rate volatility in early 2020. Fixed indexed annuities (FIAs), which track a major market index like the S&P 500® index or provide guaranteed interest via a fixed account, may present a safe option for clients. Here are a few reasons why:

  • Principal protection—By eliminating losses and protecting principal, a FIA can reduce a portfolio’s standard deviation and reduce overall risk.
  • A market hedge—Since FIAs are not securities, they do not participate directly in the stock market. However, they do provide an opportunity for additional interest crediting when equity markets perform well, potentially providing earned interest higher than your clients could get from other safe-money alternatives.
  • Stability to help and cover essential expenses—By providing solutions that safeguard future income, FIAs can help clients cover essential expenses throughout retirement.

If they’re looking for guaranteed retirement income while still participating in the market, consider a variable annuity with a living benefit
The market decline affected nearly everyone’s retirement accounts and not in a good way. Many Americans were already worried about outliving their money in retirement, and recent events have only exacerbated that feeling. To help your clients manage those worries and look forward to the future with confidence, you might consider a variable annuity with an optional living benefit. Some optional benefits, available for an additional charge, can provide guaranteed withdrawals for life, even if the account value drops to zero. For some clients, this type of annuity provides benefits they need in uncertain times:

  • Protected income—While clients may have other income sources, an annuity can provide protected payments from an optional living benefit, which can be used to cover essential expenses in retirement. By helping to safeguard future retirement income from market downturns such as those we’ve seen recently, this type of annuity can guarantee income in both turbulent and calm economic conditions.
  • Ways to easily diversify a portfolio—Most variable annuities offer a wide range of choices for investing to help diversify your clients’ portfolios, including options that seek to absorb market loss to help minimize the negative impact of typical investor behaviors.
  • Tax advantages—A variable annuity can help clients grow their future income by deferring taxes on nonqualified retirement assets. Variable annuities also can help reduce your clients’ taxes when they are rebalancing or making trades, since those actions within an annuity are not taxable events.

Bringing Certainty to an Uncertain World

For clients who are looking for some protection, stability, and security in today’s uncertain world, an annuity may be something to consider. Whether it be principal protection offered by a fixed indexed annuity or a variable annuity with an optional benefit, annuities can help clients overcome their hesitation and concerns, and make progress toward their retirement goals. Clients should consider both the advantages and disadvantages of annuities before purchasing.

 

 

 

1 https://www.bankrate.com/surveys/covid19-financial-health-index/
2 https://www.bankrate.com/surveys/spending-investing-during-coronavirus/
About Pacific Life
For more than 150 years, Pacific Life has helped millions of individuals and families with their financial needs through a wide range of life insurance products, annuities, and mutual funds, and offers a variety of investment products and services to individuals, businesses, and pension plans. Whether your goal is to protect loved ones or grow your assets for retirement, Pacific Life offers innovative products and services that provide value and financial security for current and future generations. Pacific Life counts more than half of the 100 largest U.S. companies as its clients and has been named one of the 2020 World’s Most Ethical Companies® by the Ethisphere Institute. For additional company information, including current financial strength ratings, visit www.PacificLife.com.
Pacific Life refers to Pacific Life Insurance Company and its affiliates, including Pacific Life & Annuity Company. Client count as of June 2019 is compiled by Pacific Life using the 2019 FORTUNE 500® list.
Insurance products are issued by Pacific Life Insurance Company in all states except New York and in New York by Pacific Life & Annuity Company. Product availability and features may vary by state.
All investing involves risk, including the possible loss of the principal amount invested. The value of the variable investment options will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. Please see the prospectus for a detailed description of investment risks.
Under current law, a nonqualified annuity that is owned by an individual is generally entitled to tax deferral. IRAs and qualified plans—such as 401(k)s and 403(b)s—are already taxdeferred. Therefore, a deferred annuity should be used only to fund an IRA or qualified plan to benefit from the annuity’s features other than tax deferral. These features include lifetime income, death benefit options, and the ability to transfer among investment options without sales or withdrawal charges.
Variable insurance products are distributed by Pacific Select Distributors, LLC (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company (Newport Beach, CA) and an affiliate of Pacific Life & Annuity Company. Variable and fixed annuity products are available through licensed third parties.
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