Clients are rightfully concerned about protecting their retirement savings in the crucial years just before retirement. As their financial professional, you can help them limit potential losses stemming from the bad luck of experiencing a down market as retirement approaches.

It goes without saying that clients may struggle with market volatility. Watching retirement savings decline by 10% or more right before retirement can call into question even the sturdiest of retirement-income plans and cause clients to act irrationally. They may want to flee to the presumed safety of fixed income or cash investments. But are clients really safer in those vehicles? When planning for a 20-plus-year retirement, it’s important to consider a long-term investment plan and the potential impact on growth if clients are out of the market. As you can see in the following example, getting out of the market—even for a brief time—can cause clients to miss opportunity and upside recovery.

How Can an Annuity Help Tamp Down Fear?

To alleviate trepidation about sticking to the investment plan, you can consider offering an annuity that includes a level of protection against market loss. For example, a registered index-linked annuity links to index performance and may offer protection in two forms:

• A floor—where the insurance company sets maximum loss level is set. Let’s say the floor is –10%. In that case, a –25% index return results in a maximum –10% loss. But a –9% return is a –9% loss because the return is less than the maximum.
  
  
• A buffer—where the insurance company will absorb initial losses that are within the buffer. Clients would, however, realize any loss that exceeds the buffer. So, with the same –25% return and a 10% buffer, the client would realize a –15% loss. But if the index returned –9% (within the buffer), the client’s account value would receive 0% credited and no loss.

In exchange for the protection of the buffer or floor, these annuities will employ growth mechanisms that may not deliver fully on market performance but will capture a portion of it. For example, a method for crediting interest may use a cap (maximum growth) or participation rate (percentage of performance).

Up-Market Years Are Generally More Common Than Down-Market Years

In addition to offering your clients a product with a level of protection against loss to lessen a “flee-to-safety” mentality, you may want to show them that, over time, there have been more positive than negative years in the market. And though past performance is no guarantee of future results, staying true to their goals can help them benefit from market rallies. By purchasing an annuity that includes a measure of protection against those negative years, the impact to income may be lessened.

Market Protection Could Help Clients Stay Invested for the Long Term

The goal is to give clients the confidence to stay invested during those crucial years as they near retirement, so they have the fortitude to stick to their long-term plans. If the market is in a downswing, an annuity with a floor and/or buffer can help protect a portion of their accumulated savings and may allow them to feel better about staying on track.

ACTIONS YOU CAN TAKE RIGHT NOW

• Identify clients who have expressed concerns about market volatility and have a desire to mitigate risk in their portfolios.
  
  
• Review the floor and buffer strategies that may help alleviate those concerns.
  
  
• Determine which annuity product might work and which protection options may be appropriate.
  

Additional Resources and Links

Retirement Strategies Blog

Income Planning

Market Insights

For more information about retirement-planning, please contact our Retirement Strategies Group at RSG@PacificLife.com or (800) 722-2333, ext. 3939. PacificLife.com

Past performance is no guarantee of future results.

Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.

This material is provided for informational purposes only and should not be construed as investment, tax, or legal advice. Information is based on current laws, which are subject to change at any time. Clients should consult with their accounting or tax professionals for guidance regarding their specific financial situations.

Annuities are long-term contracts designed for retirement. Annuity withdrawals and other distributions of taxable amounts, including death benefit payouts, will be subject to ordinary income tax. For nonqualified contracts, an additional 3.8% federal tax may apply on net investment income. If withdrawals and other distributions are taken prior to age 59½, an additional 10% federal income tax may apply. A withdrawal charge also may apply and a market value adjustment (MVA) also may apply. Withdrawals will reduce the contract value and the value of the death benefit, and also may reduce the value of any optional benefits.

J.P. Morgan Asset Management is not an affiliated company of Pacific Life Insurance Company.

Insurance product and rider guarantees, including optional benefits and any fixed crediting rates or annuity payout rates, are backed by the financial strength and claims-paying ability of the issuing insurance company and do not protect the value of the variable investment options. They are not backed by the broker-dealer from which this annuity is purchased, by the insurance agency from which this annuity is purchased, or any affiliates of those entities, and none makes any representations or guarantees regarding the claims-paying ability of the issuing insurance company.

This material is educational and intended for an audience with financial services knowledge.

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