Is a fixed annuity worth it for those early retirement years?

As an advisor, you have many tools in your toolbox to help guide your clients through their retirement planning process while diversifying their portfolios. However, there may be one tool that is currently underutilized – the fixed annuity. Similar to a bond or CD, fixed annuities are considered safe money products, with added benefits that could make them an alternative choice. Fixed annuities can be especially useful to those who will be retiring in the near future and have a lot they want to see, do and accomplish in those first few years of retirement.

Knowing that people tend to spend more money in the early years of their retirement, especially on activities, hobbies and travel – it’s important for you to help them plan accordingly. Looking ahead and providing solutions that will allow your clients to hit their savings targets can be made easier with a safety-oriented product, like a fixed annuity. With fixed annuities you will be able to help your clients protect what they have already saved and continue to grow their money – giving them the flexibility and resources to do what they want to do. In order to achieve this, there are a few things you should consider.

Fixed annuities have a host of guarantees that make them an attractive alternative to other financial products. Most have a guaranteed interest rate, and some guarantee no loss of principal, which removes the interest rate risk associated with the bond portion of retirement portfolios. For your clients who are nearing retirement age, you most likely advise them not to risk their money on the volatility of the market, since they wouldn’t have time to recoup a loss. With fixed annuities, their money can grow at a fixed rate year after year for the life of the contract. Additionally, there are multiple rider options that can provide even more protections, such as removing surrender charges if there’s an unexpected change in the health of the policy owner. These options will best protect your clients’ savings in the final years of their career while it continues to grow and allow them access to that money in the near term.

Fixed annuities are tax-deferred. That deferment provides an easy way for your clients to get tax free growth for the life of the annuity, and any subsequent renewals, until they start making withdrawals. With all tax-deferred products, the taxes on the gains are paid once the money is withdrawn. As the advisor, you want to ensure your clients are saving above and beyond their goals to account for any tax or other payments that may be due once they start using their retirement funds. Unlike variable annuities, fixed annuities have very few fees, which means your clients keep more of their money.

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Due to the guaranteed interest rate that is a feature of most fixed annuities, they can provide a regular pension-like income. These payments provide your clients with a dependable income that can last for their lifetime, making it easier for them to plan for every stage of retirement.

Maximizing the use of different tools and products will help you to ensure your clients’ retirement dreams are realized. With the multiple benefits and guarantees provided by fixed annuities, advisors everywhere should consider utilizing them especially in your planning for the first several years of a person’s post-work life. If you’re interested in potentially introducing your clients to fixed annuities, consider reaching out to a qualified financial professional.

Mark MacGillivray is director of financial institutions for annuities at The Standard.