Annuities as an Alternative Fixed Income Allocation?

Written by: Marshall Heitzman, CFP®, ChFC, FLMI, CPCU, BFA™

Nov 24, 2020 Share This 



Your mix of clients likely ranges from those who can stomach a lot of risk to those who have an almost unhealthy fear of losses. Understandably, those who are highly risk-averse are typically dissatisfied with the low returns that often accompany conservative investment strategies.

Among those strategies are fixed income allocations in the form of savings accounts, CDs, money market funds and bonds. While these investment options can offer a reliable return with lower risk, it’s often difficult to generate adequate returns to grow wealth or sometimes even outpace inflation. 

Interest rates have been at historic lows, and the Federal Reserve expects them to remain that way for years.1 With this knowledge in hand, many conservative investors are looking for opportunities to benefit from potential market returns, but only as long as they receive some protection against unlimited loss of principal.

Are Safe Returns Really “Safe”?

Feeling a sense of security and stability are often at the heart of conservative investing. As clients age, traditional theory holds that a progressively larger allocation of a retirement portfolio is invested conservatively. Common objectives of this position are primarily to preserve and, secondarily, to safely gain some return where possible.  

But how safe is too safe? Low-risk and low-rate investments are not necessarily risk-free. On the contrary, inflation and interest rate risk could cause historically low returns on conservative investments that actually result in negative real rates of return over time.

As an example, consider that rates on a 12-month CD have seen little variance in the last decade and recently dipped to below 0.2% return.2 Compare that with the average annual inflation rate that’s hovered around 2.0% during the last few years, and the real rate of return becomes apparent.3 

Since many conservative investments could still result in retirees losing ground, some might feel pressured to take on more investment risk and pursue better returns in equity or bond markets against their better judgment. Such a predicament could create anxiety that leads to irrational decisions. So, what is an investor to do?

Alternative Fixed Income Allocations

Experienced advisors may be able to offer sophisticated hedging strategies, but such an approach can take a significant amount of time (and expense) to develop. Clients may also feel uneasy with an unconventional strategy that hasn’t been proven elsewhere. A more practical approach might be to recommend investments in ready-made insurance products with built-in protection and guarantees.

Annuities can provide an easy alternative to participate in market-like gains while still ensuring against loss. Many features can provide a favorable solution for that conservative allocation position and desirable protection with potential for a better return.  

The bottom line is that an annuity likely meets the objectives of a conservative portfolio allocation and may be in a client’s best interest. As an advisor, consider recommending annuity investment options that offer limited or no loss possibility and have a greater potential for return than traditional fixed income allocations.

Understandably, some clients may associate annuities with outdated stereotypes, believing they won’t be able to access funds, that heirs will be left empty handed, or that annuities are complex and expensive. As you know, there are many types of annuities and new products that have come available in recent years, so it’s important to dispel inaccurate myths to help clients make informed decisions by understanding and weighing all their investment options.

As an example, a recent introduction in the annuities landscape is the MaxProtect™ Fixed Annuity, offering guaranteed rates and steady, tax-deferred growth. Unlike many complex annuity products, it is simple and straightforward, helping investors fully understand their options and plan confidently for the future. Investors can assign beneficiaries and have the ability to access funds in times of need, among many other benefits.

To learn more about this and other annuity investment strategies, contact your wholesaler. Also explore our Elevate Advanced Planning Resources for tools that can help you provide a holistic, well-rounded approach to investing, including legacy planning, rollover opportunities, annuity strategies and more.



Marshall Heitzman
Written by: Marshall Heitzman, CFP®, ChFC, FLMI, CPCU, BFA™

Marshall is CUNA Mutual Group's Advanced Planning Expert and has more than 25 years experience in the insurance and financial services industry. He consults Financial Advisors on advanced retirement planning concepts for retirement and wealth management clients.


SOURCES, Powell says low interest rates could last for years, September 4, 2020, Weekly National Rates and Rate Caps - Previous Rates, October 5, 2020
3Bureau of Labor Statistics, CPI for All Urban Consumers (CPI-U), October 9, 2020


Base policy forms ICC20-SPDA, 2020-SPDA.
CMGA, CMP-3260300.1-0920-1022

Topics: Advanced Planning