How advisors can prepare clients for an uncertain retirement landscape

As inflation expectations rise, geopolitical uncertainty persists, and investors look ahead to the Federal Reserve's upcoming meetings, advisors are closely monitoring how these factors may impact client portfolios.

According to Security Benefit’s recent data from its Q2 Financial Professional Outlook Index, 51% of financial professionals expect inflation to remain between 3% and 3.9% over the next 12 months, suggesting today's higher interest-rate environment could continue.

“Higher rates can allow those in or near retirement to lock in attractive interest potential through higher fixed rates or higher caps and participation rates in fixed index annuities,” said David Byrnes, head of distribution at Security Benefit.

With all the uncertainty, it’s more important than ever for advisors and their clients to assess their current standing with respect to retirement goals and identify strategies that strike a balance between growth and downside protection.

Meeting in Washington on Tuesday and Wednesday, the Fed voted to keep its benchmark interest rate unchanged. Members of the central bank’s rate-setting committee may not be so reluctant to act when they gather again next Sept. 15-16.

Inflation has been stuck above the Fed's 2% target for more than five years. New Fed Chair Kevin Warsh told Congress earlier this month that he had “no tolerance’’ for elevated inflation. Warsh presided over his second policy meeting this week.

Managing portfolio risk

Security Benefit found that 76% of advisors consider geopolitical instability the most difficult risk to plan for, and 39% have increased allocations to international equities.

Diversifying internationally could make sense, but advisors should also consider whether protection-based products like fixed indexed annuities fit within a client’s broader retirement strategy.

“These types of products offer a backstop to the turmoil by providing a principal guarantee that helps protect against market losses while offering interest potential tied to market performance,” Byrnes explained.

Building multiple retirement strategies

Though the Economic Outlook Index declined from 59 in Q1 to 55 in Q2, 56% of advisors believe a recession is unlikely to occur over the next year.

Even so, Byrnes points out that advisors are facing no shortage of issues to discuss with clients.

“A new chair at the Federal Reserve, ongoing geopolitical turmoil, U.S. debt concerns, rising healthcare costs, and longevity risks all have the potential to significantly affect retirement planning,” Byrnes explained.

Advisors should recognize this and focus on building flexible retirement income strategies that can withstand a variety of economic scenarios while keeping clients invested for the long term.

Why interest rates matter right now

Although rates could decline over time, that doesn't appear likely in the near term.

“Since fixed rates remain high and some fixed annuities are paying greater than 5%, it may be prudent to lock them in before year end,” Byrnes said.

If there is any change in Fed priorities that results in lower rates, advisors should review client retirement income strategies to determine whether annuities or other products still align with their goals.

By combining growth strategies with appropriate protection solutions, advisors can help clients build retirement plans designed to weather market volatility while supporting their long-term income goals.

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