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Managing and prioritizing financial wellness can cause clients additional stress. According to the recent “Making Ends Meet” survey from the Consumer Financial Protection Bureau, many Americans struggle to feel confident in their finances. Simultaneously, The National Institute on Retirement Security found more than half (55 percent) of Americans are concerned that they cannot achieve financial security in retirement.
Accounting for factors such as inflation, economic instability and longer life spans, relying on traditional retirement savings methods including 401(k)s and Social Security may not provide the financial security so many Americans are searching for when heading into retirement. This makes saving and navigating financial wellness more daunting and complicated than ever. To help address these concerns, it is essential for financial professionals to include a variety of sources of guaranteed income to give clients the freedom to worry less, gain confidence about the future and enjoy life more.
With more than a quarter of Americans (26 percent) relying on employer-sponsored plans as their biggest source of retirement income, according to a 2023 survey from Athene, an opportunity exists for financial professionals to educate their clients on a diverse range of retirement savings options. Equipped with these strategies and products, clients can find alternative savings methods to address their financial and personal stressors and make steady progress towards a secure retirement.
It is essential that all aspects of financial wellness are top of mind when building a retirement plan for your clients. This starts by acknowledging a retirement plan does not simply represent the best investment decisions but rather is tailored to the individual client, encompassing short- and long-term savings strategies that account for assets, personal goals and other individual factors.
Financial professionals can draw on the following tips to help build a strong base for a secure retirement and aid clients’ financial wellness.
Diversify savings strategies
As market conditions fluctuate, so can your clients’ goals, strategies, and previously set retirement timelines. Amid their own financial stresses, it’s easy for clients to focus on the environment in front of them instead of considering their longer-term goals, like retirement. One of the best ways financial professionals can help clients manage changing priorities and shifting markets is by emphasizing the importance of diversifying savings strategies to help spread out any potential risks.
Economic and market volatility may already be forcing clients to search for new strategies to not only protect their assets but grow them. As a financial professional, this is an opportunity for you to emphasize the power of diversification across savings strategies and the ability to not only spread money between asset classes but also within the same asset class, a strategy that may be beneficial in the long run.
Present this to clients in a digestible manner, highlighting the similarities to allocating 401(k) contributions to a target date fund, an approach that exposes growth opportunities while there’s time to recover lost ground and can gradually lower the risk exposure as retirement approaches. Many clients likely have a diversified financial strategy – even if they are not actively aware of it –by setting aside monthly income, evaluating risk in their investments and investing for the long term. Step in as an expert to explain that diversification is more than just having different baskets for savings and investment strategies. It’s what’s in the baskets that makes a difference.
One option to present to clients to diversify their savings portfolio is annuities. Annuities can protect savings in turbulent times and can help set clients up for their dream retirement. More specifically, annuities provide insurance against the risk of outliving savings after entering retirement. Clients get to grow their savings and create guaranteed income for life, checking off more boxes to help achieve overall financial wellness. Only three percent of Americans rely on annuities as their primary retirement savings vehicle while one in five Americans (21 percent) do not know what an annuity is, according to Athene, leaving room for you to educate your clients on these products and the potential for them to add another source of secure income for the future.
Implement savings vehicles for longevity
Annuities can be a big piece of the puzzle to help clients minimize risks and protect assets, as they come in many unique forms. One particular type of annuity, fixed indexed annuities (FIAs), are valuable tools for financial professionals to help meet clients’ ever-changing expectations, as they are designed to meet a variety of needs.
FIAs are long-term, tax-deferred insurance products that can be a solution for those looking to grow their retirement savings. These products come with a range of advantages, including the growth potential they offer and loss protection in bearish markets. Specifically, FIAs offer the potential for interest earnings based in part on the upside performance of underlying stock market indices while simultaneously shielding retirement assets from market risk.
With an FIA, the insurance company guarantees the investor will not lose their initial premium due to market downturns. Overall, FIAs add an extra cushion of security and build a foundation for financial wellness now and in the future.
Personalize retirement savings with custom indices
Planning for a financially successful future is a highly personal journey, and your clients’ retirement savings strategies should reflect that. The custom indices included in modern FIAs seek smoother, risk-adjusted returns by allowing diversification within the annuity beyond the U.S. large-cap equities in the S&P 500® and managing exposure to market volatility.
Custom indices for FIAs are created using advanced technology and predefined rules. They also feature automatic tracking to continuously assess their effectiveness and performance, allowing for quicker reactions and adjustments to changes in the market or set criteria.
A custom index has a volatility control element that seeks to limit volatility to a target level, similar to how a car’s shock absorber cushions passengers from bumps in the road. As a result, your client might not enjoy all the gains when the market rises, but they’re better cushioned against major drops, leading to potentially smoother returns, especially if the indices are not correlated. In sum, if you are applying a custom index to an FIA, you are automatically adding diversification to your client’s portfolio.
Custom indices can play a key role in a comprehensive strategy, potentially increasing the likelihood of positive outcomes inside of an FIA. When implementing a custom index, factor in clients’ personal goals, concerns and comfort levels. This is where you can step in as a guide to help your clients determine where and how a custom index in an FIA can benefit their situation and overall financial wellness.
Takeaways
The current economic environment is stressful for many clients. According to Athene, more than two-thirds of Americans (69 percent) agree that the current economy has caused them to rethink their retirement savings strategy. Help set your clients up for a secure retirement by acknowledging today’s risky environment and ensuring they understand the personalized and strategic diversification approaches to long-term savings.
Addressing many retirement planning risks and rounding out overall financial wellness with fixed indexed annuities and custom indices can be valuable additions to retirement income strategies. This will both strengthen your clients’ financial portfolios and reduce stressors that your clients may be facing regarding their goal of a secure retirement.
Look to empower your clients with the knowledge of the advantages these products contain. Consider your clients’ individual needs and look to personalize their retirement plan to help support their dream retirement, financial wellness and financial security.*
Rod Mims is the senior vice president of distribution at Athene.
* A diversified allocation does not ensure positive interest credits in any given year.
Guarantees provided by annuities are subject to the financial strength and claims paying ability of the issuing insurance company.
Indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. Market indices may not include dividends paid on the underlying stocks, and therefore may not reflect the total return of the underlying stocks; neither an index nor any market-indexed annuity is comparable to a direct investment in the equity markets.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.