Last year ended in a much different spot than it started.
Interest rates more than doubled since January. The stock market has been incredibly volatile. Inflation has hit 40-year highs. The present economic uncertainty is leading Americans to worry about their financial futures. The reality is that no one knows how long this fraught economic environment will last before it settles.
Americans are taking note and there is a clear impact. The majority of Americans (62 percent) worry that a major recession is right around the corner, according to the 2022 Q3 Quarterly Market Perceptions Study* from Allianz Life Insurance Company of North America (Allianz Life). This concern about a looming recession has been consistently higher in 2022 than in 2021.
And, Americans are worried about how inflation, in particular, will affect their finances. Three in four Americans (75 percent) said they are worried the rising cost of living will affect their retirement plans. While Americans are increasingly worried about their financial futures, it also seems like the old ways of retirement planning might not be effective in today’s environment.
Your clients want to mitigate the risks that could potentially derail their
retirement. They need a financial professional who can help them make a holistic strategy to save for and then fund their retirement by looking at the totality of their financial situation. The trend toward holistic financial planning strategies is driving many to rethink the traditional portfolio diversification approach with a 60/40 mix of equity and bonds. Many want to add insurance products into that mix to provide a level of protection from market downturns. In fact, the vast majority (78 percent) of Americans said having a guaranteed lifetime income option[1] (such as an annuity) as part of their retirement strategy could help address concerns about inflation.
Adding a risk management product like an annuity to a client’s portfolio can be a strong strategy as part of a holistic financial plan. Financial professionals can consider the value of using registered index-linked annuities for clients who are investors and are willing to take on some risk and fixed index annuities as effective tools for savers who want to protect their principal.
Annuities can indeed play a key role in providing a renewed sense of protection in these risky and unstable times. By offering a level of protection to a portion of a client’s retirement income strategy while still offering some accumulation potential, annuities can be used effectively to help fight inflation and address the effects of market volatility. Right now, that reassurance is important to clients.
A lifetime of guaranteed income
Annuities, like a pension or Social Security, provide a dependable stream of income that cannot be outlived. That helps mitigate the risk of running out of money, which for many Americans is very much top of mind.
The fear of running out of money during retirement has only heightened as the reality of retirement changes for so many. Personal savings now make up a larger portion of retirement funds than in the past. This means more responsibility for funding a retirement, and taking on the risks associated with it, is left to the individual. With that shift, clients need the guidance of a financial professional now more than ever.
Other insurance products, like a fixed index universal life insurance policy, can also play an important role amid economic uncertainty. They can provide long-term financial protection, financial reassurance for beneficiaries through the death benefit, and can help reduce the overall risk in a client’s portfolio.
The current economic environment has bolstered the value proposition for your clients to use annuities in their long-term financial strategy. Clients need help managing risks to their retirement to feel confident in decisions to ensure their money will last their lifetime.
We do not know how the economy will look a year from now. The markets could be up or down, inflation may persist, and new issues may arise. The best we can do for our clients is help them prepare them for the potential risks in the future.
*Allianz Life conducted an online survey, the 2022 Q3 Quarterly Market Perceptions Study in September, 2022, with a nationally representative sample of 1,004 Respondents age 18+.
[1] Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Variable annuity guarantees do not apply to the performance of the variable subaccounts, which will fluctuate with market conditions.
An income benefit may be included with some annuities as an optional or built-in rider and may be at an additional cost.
