Annuity Solutions

Underwriting Retirement Volatility

How annuities can be the cure for an uncertain economic forecast

by Chris Conklin

Mr. Conklin is vice president of individual annuities at The Standard. Besides being a Fellow of the Society of Actuaries, Chris is a licensed agent, has sold insurance and annuities and co-owned a national marketing organization. Visit

Forecasting the economy is often a guessing game, likely more difficult than forecasting the weather. But one thing is clear: We’re entering uncertain times. Despite unemployment being at an almost 50-year low, a recession is still possible in the year ahead. Between talks of an economic slowdown and the recent unpredictability of the market, clients are sure to be wary about their finances and how to appropriately plan for the future.

However, you can turn to financial products that offer stability and solid gains to provide clients with peace of mind. As 2019 unfolds, consider how you can position annuities as a way to make the most of current economic trends and deliver a bright financial future for your clients.

Safety First

With the market entering a period of unpredictability, investors are trading more conservatively. An escalating trade dispute, rising international tariffs and increasing interest rates are all having a demonstrable impact on the market. At the same time, the economy is still prospering, with a 4 percent unemployment rate and an additional 304,000 jobs added in January.

For years, the stock market has been steadily increasing alongside a robust American economy, and investors have faced very little uncertainty. However, in the past few months alone, the stock market has swung wildly in both directions, giving producers and clients alike a reason to be hesitant when investing. These fluctuations in the market have clients asking essential questions: How much money can they afford to put at risk with market-based investments? What is the best way to protect their assets? How much should they keep out of the market? The unpredictable nature of the market may cause cautious clients to think twice about their previous options, including mutual funds.

Although choosing mutual funds often is good for those looking to base their growth on market trends, it can lead to losses during periods of market volatility. One benefit is that fixed and indexed annuities are not directly tied to the stock market and are protected from downward swings. This makes annuities a viable option for your wary clients since they are not susceptible to loss when the market is in turmoil.

Interest rates are key

Money market funds and annuities are both traditionally considered safe financial vehicles. But what makes them so? The simple answer is interest rates...

Money market funds and annuities are both traditionally considered safe financial vehicles. But what makes them so? The simple answer is interest rates. With rising interest rates, annuities give clients the safety and protection they seek along with a solid interest rate. Money market funds generally can’t keep up with the interest rate of an annuity, and while bond mutual funds offer adequate interest rates as well, they don’t provide the security or protection annuities do in case of market turmoil or a recession.

Some annuities offer flexible issue ages and surrender periods

One of the most common myths around annuities that may deter clients is the surrender charge period. Many clients have had to make difficult decisions regarding surrender charge periods, as the most attractive fixed and indexed annuities tended to have a time frame of 10 years or longer. It is true that when clients agree to an extended surrender charge period, they have higher interest rates, cap limits or participation rates as a reward for committing to a longer time period.

Newer annuities not only have shorter surrender charge periods (such as five or seven years, instead of 10) but also often have similar interest, cap and participation rates to these longer surrender periods. This shift in annuities has made them a more alluring option for your clients’ financial plans.

The flexibility of surrender charge periods has also given clients flexibility with issue ages, too. Before, clients who put money in an annuity in their 60s and 70s found fewer options when they reached their 80s. However, five-year surrender charge periods mean certain carriers have increased their issue ages to people in their upper 80s and even early 90s. This gives older clients an alternate option for further interest crediting and, potentially, eventual wealth transfer. These options give clients a safer and more stable way to protect their savings and even their future wealth.

Annuities offer a stable portfolio booster

While some clients are happy playing the stock market, shifting money from account to account, annuities provide a stable solution. Instead of playing the market to receive the greatest gains, annuities lock in growth without constant monitoring. Especially for older clients, annuities offer a simple and safe option for their financial plan that doesn’t require constant upkeep. Annuities are one of the best ways to strengthen a portfolio that needs protection and stability.

As a producer, you can greatly help your clients by watching current market trends and using them to offer options that protect your clients’ investments during turmoil — while also providing potential growth during economic vitality. Whether or not the market will decline remains to be seen, but annuities are a formidable choice that will protect clients and their investments. ◊