Recalibrating risk tolerance
This content is categorized as:Although most Americans aren鈥檛 directly invested in individual stocks, have some level of investment in the market 鈥� mostly in retirement accounts such as 401(k)s. The volatility and uncertainty caused by the coronavirus pandemic may have left some of your clients wondering if they鈥檙e taking the right amount of risk with their retirement plans even with the market recovering to pre-pandemic levels.
Thinking differently about risk
It鈥檚 one thing to think hypothetically about saving and losing money. But watching your retirement account balances tumble in market downturns has real-world implications. The uncertain times we鈥檙e living in may prompt some clients to reassess their appetite for risk, and now might be the right time to talk about making some changes.
One way to start the conversation is by asking your clients how the volatile market conditions made them feel. Were they anxious, queasy or unbothered by it? Are they inclined to change how their retirement savings are allocated, or are they content to let things stand?
Some clients, especially those in or nearing retirement, may want to dial back on portfolio risk. In those cases, two recalibration strategies worth considering include increasing fixed-income allocations or annuitizing a portion of their portfolio. Reducing exposure to volatile markets and capturing income guarantees may help clients who want less risk exposure to feel better about staying on track for their goals.
Quick quiz for clients
You may find that some clients aren鈥檛 sure if their appetite for financial risk is the same or if it鈥檚 changed since you last talked about it. If they aren鈥檛 sure, 麻豆传媒 has developed an article and quick quiz to help them gain a better understanding on how they may feel now.
Finding solutions across the spectrum
Annuities, which convert money into future income, could be a solution to help your clients stay in their financial comfort zone. The chart below maps different kinds of annuities along a risk spectrum, which you can use to show clients the choices they have according to their comfort level. The left side of the spectrum is the most conservative. Anyone with the highest tolerance for risk may feel comfortable at the far right.
Diving deeper into annuity options
- Immediate Annuity
These carry the lowest risk. With an immediate annuity, your clients鈥� premium payment is converted to a guaranteed income stream for life, or for a specific period.
- Fixed Annuity
This deferred annuity offers a fixed interest rate that鈥檚 guaranteed for a certain time period. The guarantee may appeal to savers who are willing to sacrifice the potential for higher returns when the markets rise.
- Fixed Indexed Annuity
In the middle of the spectrum, fixed indexed annuities have become increasingly popular with people who have a moderate appetite for risk. With these, your clients earn interest credits based in part on the upward movement of a stock market index while enjoying the protection of a zero percent floor. If the net change over a given crediting period is negative, the client earns zero interest credits for that period, but never less than zero.
- Variable Annuity
These carry the highest level of risk because a client鈥檚 money is invested directly in the market. Variable annuities offer the highest growth potential of any of the products on the annuity spectrum, but they also fully expose a client to market loss.
- Registered Index-Linked Annuity
These products are designed for people with a higher risk tolerance. Registered index-linked annuities also offer your clients the potential for interest credits tied to index performance while providing a measure of protection from market loss.
 |
Risk-managed growth potential is the power behind RILAs. Compare rates from many of the top carriers and see for yourself. |
Depending upon your client鈥檚 risk tolerance, this may be the time to reassess your clients鈥� retirement plan and reallocate a portion of their savings in annuities to better protect their nest egg against future downturns.
This information is brought to you by 麻豆传媒 鈥� where innovative annuity solutions are powered by unconventional thinking.
