In times of market volatility, FIAs make the difference

Volatility and uncertainty over the markets are dominating the news right now, and clients may be flooding your inbox with questions and concerns. While the recent turbulence is being driven by extraordinary circumstances, it’s important to remember that market volatility itself is normal and should be expected. Clients should stay grounded in long-term perspective, not short-term noise, as the best approach is often to stay the course.

For clients who may be looking for investment options that help mitigate market volatility risks, annuities may offer a solution, and it’s one of the reasons why annuity sales have been booming. In 2024, annuity sales were $434.1 billion, up 13% year over year, according to LIMRA. And although there are many types of annuities to consider, fixed indexed annuities may provide the best of both worlds for clients – opportunities for protection and growth – which is why it’s no surprise FIA sales have remained high. In 2024, FIA sales grew 32% to $126.9 billion, and LIMRA predicts FIA sales will remain above $100 billion in 2025.

FIAs are a simple solution that may help clients stay calm and confident in their long-term plan, no matter the market conditions. Here are three reasons why.

1. One simple solution for market protection and growth potential

Clients want to protect their hard-earned savings so they can live out their retirement dreams, but many don’t want to (and can’t afford to) miss out on growth. According to Lincoln Financial’s research, 66% of investors are worried they can’t keep pace with rising costs. Coupled with the fact that Americans are living longer than ever, continuing to grow an account may be even more critical. If a couple is 65 years old today, there’s an 85% chance at least one will live to age 85, and a 64% chance one will live to 90. Clients must plan for longevity in retirement while keeping up with inflation and rising costs. This has become increasingly difficult with investments commonly considered “safe” such as cash, low-yield certificates of deposit and Treasuries.

With FIAs, clients get 100% downside protection no matter what is happening in the markets, and a variety of growth options, many of which are linked to the performance of highly regarded indices like the S&P 500. For example, trigger strategies available with many FIAs credit a specified rate if the tracked index is flat or positive at the end of the term. This offers clients secure and predictable growth.

2. Diversification beyond traditionally “safe” investments

Clients can benefit from a well-rounded portfolio that’s built for the long run. Bonds have historically had a steadying influence during times of equity market weakness.  But, in recent years, interest rate volatility has complicated this relationship – potentially making portfolios less resilient. Additionally, 12-month rates on CDs were below 3% from 2008 to 2022, and while they have recently increased, when taxes and inflation are factored in, these CDs have provided negative real returns in 16 out of the last 20 years.

Clients must reevaluate the risks of their portfolio as protection from loss becomes increasingly important when you consider retirement longevity. What is considered a “safe” investment may come with some hidden dangers. The stock market can feel risky, but history shows that stocks have generated positive returns 73% of the time since 1928. Diversifying a portfolio with an FIA adds resiliency, and helps clients stay positioned for long-term growth.

3. Protection from tax drag

Taxes are always an important part of client conversations. No one wants to see their retirement savings go directly to Uncle Sam, and FIAs can help clients avoid tax drag. Thanks to the tax deferral offered by FIAs, clients aren’t taxed on any growth until they take income. This allows their investment returns to compound over time, which can result in potentially greater long-term gains. They can also change their allocation each year, without the tax implications they might face with taxable assets.

While we can’t forecast market trends or news headlines, we can equip clients with strategies and solutions to boost confidence in their future and feel more at ease. As a comprehensive advisor to your clients, it’s important to simplify conversations around products such as annuities and the value they can bring to their portfolio. Showing clients how to protect their wealth during turbulent times will help deepen your relationship and build trust.

David Wood is vice president, annuity national sales manager, leading the brokerage channel distribution team at Lincoln Financial. Contact him at [email protected].

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David Wood is vice president, annuity national sales manager, leading the brokerage channel distribution team at Lincoln Financial. Contact him at [email protected].