Annuities are often seen as a tool to safeguard against the unpredictability of market fluctuations. As someone who has spent years in the financial industry, I’ve had a front-row seat to the wild ups and downs of the market. Having worked on Wall Street, I understand the volatility and risks that come with chasing returns. But when it comes to your retirement, is riding the market waves the best approach? Let’s dive into how annuities can offer protection when the markets get volatile.
My Experience with the Markets
Before I became known as “Stan The Annuity Man,” I was immersed in the world of finance. I worked at firms like Dean Witter (which later became Morgan Stanley) and Paine Webber (which became UBS). In those days, I was suited up, walking through marble hallways, watching market fluctuations closely. That experience shaped my philosophy on retirement planning. I believe in one simple mantra: “You own an annuity for what it will do, not what it might do.”
Annuities are about guarantees—simple, reliable guarantees, not speculative market dreams.
Do You Really Need an Annuity?
Full disclosure: I sell fixed annuities, including MYGAs, Indexed Annuities, SPIAs, DIAs, and QLACs—all of which provide contractual guarantees. But that doesn’t mean annuities are for everyone.
If you’re heading into retirement, chances are you’re looking for ways to shield yourself from unpredictable market swings. Each day, roughly 13,000 people turn 65, many of whom are looking to reduce their exposure to market volatility and ensure that part of their retirement savings is safe.
Annuities are designed to address four main objectives:
- Principal Protection
- Lifetime Income
- Legacy Planning
- Long-Term Care Support
I call this the PILL framework. If any of these goals align with your retirement plan, annuities could be a great option for you.
However, you don’t need to invest all your money in annuities. If you’re comfortable navigating the markets and have a strong understanding of investment risks, that’s fine. But if stability is your priority, annuities can be a great complement to your other investments.
Creating an Income Floor with Annuities
Here’s how you can use annuities effectively: build an income floor. This means securing guaranteed sources of income, such as Social Security (arguably the best inflation-protected annuity available), pensions, and possibly annuities if you need extra security.
With that income floor in place, you can invest the rest of your portfolio in the markets without the stress of worrying about volatility eating into your retirement funds. You won’t need to sell your investments during market downturns because your essential income needs are already covered.
Beware of Unrealistic Sales Pitches
This is where I get particularly passionate: avoid pitches that promise market returns with full principal protection. If it sounds too good to be true, it likely is.
A lot of these claims come from salespeople promoting Fixed Indexed Annuities. These products, introduced in 1995, were designed to offer returns similar to certificates of deposit (CDs)—nothing more, nothing less. They were never intended to track the stock market or deliver the kind of returns you see in equities.
And yet, during those “too-good-to-be-true” seminars, you’ll often hear the claim, “Market upside with no downside!”
Please, don’t fall for it. While Indexed Annuities can be effective products, they’re not investments. They’re contracts that offer guarantees—not projections. If you’re looking for true security, choose the guarantees they offer, not what might happen based on hypothetical scenarios.
A Smarter Approach to Using Annuities
For those seeking principal protection and guaranteed returns, consider MYGAs (Multi-Year Guarantee Annuities). They work similarly to CDs but typically provide better yields, and the interest can compound tax-deferred or be withdrawn annually.
For guaranteed lifetime income, options like SPIAs, DIAs, and QLACs allow you to transfer the risk to the insurance company and secure income for life. When combined with Social Security, this strategy creates a strong foundation for financial security, no matter how turbulent the market may be.
Final Thoughts
Annuities aren’t a magic bullet, nor do they replace the role of the markets in a diversified portfolio. However, they can serve an important purpose in your retirement plan by offering stability, principal protection, and an income stream you won’t outlive.
So, the next time you feel anxious about market swings, remember that annuities are designed to provide stability, not speculation. When used wisely alongside your investments, they can help you weather any market storm with confidence.
