Leveraging Annuities During Market Uncertainty
Annuities have always played a role in retirement planning, but increasingly, they have become a valuable tool in buffering market volatility. There are many different types of annuities, and they won’t all offer identical benefits or protections, so it is essential to understand which types can assist you in accomplishing your goals.
Below is a summary of the four types of annuities that have the potential to be enhanced with riders.
- Fixed Annuities: With a fixed annuity, the insurance company guarantees a fixed interest rate for a specified period. This type of annuity provides a predictable stream of income and is ideal if you seek stability in your investments.
- Fixed Index Annuities: Interest credited to a fixed indexed annuity is linked to the performance of a stock market index; however, your participation in any gain experienced by the index will be limited to the percentage of the gain set by the insurance company. This limits your upside potential, while the insurance company helps to protect your principal in negative markets through a minimum guaranteed contract value.
- Registered Index-Linked Annuities (RILA): The performance of a RILA annuity is linked to the performance of a market index; however, your participation in any gain experienced by the index will be limited to the percentage of the gain set by the insurance company. This limits your upside potential, while the insurance company helps to protect your annuity value from market volatility. This protection from market volatility is limited and will not prevent your annuity from losing value.
- Variable Annuities: Variable annuities allow you to invest in a selection of sub-accounts, similar to mutual funds. The returns on a variable annuity are not fixed and depend on the performance of the chosen investments. While they offer the potential for higher returns, they also come with greater risk.
Annuity Comparison Chart
Fixed Annuity: Guaranteed Rate of Return | Fixed Index Annuity: Avoid Downside Exposure | Registered Index-Linked Annuity: | Variable Annuity: | |
Tax Deferred Gains | Yes | Yes | Yes | Yes |
Market Exposure | None | None | Yes | Yes |
Downside Protection | Yes | Yes | Some | No |
Risk/Reward | Principal Protection | Principal Protection | Partial Downside Protection | Greatest Exposure to Market Risk |
Return Potential | Fixed Rate Growth | Partial Upside Capture | Partial Upside Capture | Highest Return Potential |
Benefits of Annuities During Times of Market Volatility
Asset Protection: Fixed annuities, in particular, offer protection against market downturns. Since the interest rate is fixed, your principal is shielded from market volatility. This can be especially reassuring during economic crises when stock markets may experience significant declines.
Investment Growth: A fixed annuity can provide a fixed growth rate on an annual basis for a predetermined number of years. A fixed annuity eliminates market exposure in exchange for the fixed interest rate determined by an insurance carrier.
Guaranteed Income: One of the most significant advantages of annuities is the guarantee of a regular income stream. In a volatile market where the value of traditional investments like stocks and bonds can fluctuate dramatically, knowing that you'll receive a predetermined amount on a regular basis can provide peace of mind. Additionally, many annuities offer the option of guaranteed lifetime income, ensuring income for life.
Tax Deferral: Annuities offer tax advantages, such as tax-deferred growth. This means you won't pay taxes on your earnings until you start receiving payments, potentially allowing your investments to grow faster over time.
Peace of Mind: In a volatile market, emotional stress and anxiety can lead to impulsive financial decisions. Annuities provide a sense of security and stability, reducing the temptation to make rash choices during turbulent times.
While annuities are popular tools if you are looking for protection as well as growth potential—they are not for everyone. Due to their complexity, it is important to consult with your Financial Advisor for assistance in deciding on the appropriate annuity based on your financial goals and investment preferences.
Working With Janney
Depending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.
If you engage in a brokerage relationship, you will buy and sell securities on a transaction basis and pay a commission for these services. Our recommendations for the purchase and sale of securities will be based on what is in your best interest and reflect reasonably available alternatives at that time.
If you engage in an advisory relationship, you will pay an asset-based fee, which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory relationships.
For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.
By establishing a relationship with us, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences.
Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.
Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. Annuities are sold by prospectus and are available upon request. The prospectus contains important information about the annuity contract, including investment options, death benefits, and annuity payout options. Annuity guarantees are subject to the claims paying ability of the issuing insurance company. Many annuities have surrender charges and other fees and expenses that may apply, consider these expenses as they apply to your specific circumstances.
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