Market volatility can create uncertainty for anyone planning for or living in retirement. Sudden downturns and sharp swings in the value of investments can make it difficult to maintain consistent income and preserve savings. For retirees or those nearing retirement, this uncertainty can be especially stressful, as the ability to recover from market losses becomes more limited over time.

While no single product can eliminate market risk entirely, certain tools can help add stability to an overall financial plan. Annuities, when used appropriately, can provide a source of steady income that is less affected by short-term market movements. In this article, we will explore how annuities may help address market volatility, ways they can fit into a diversified retirement strategy, and factors to consider when evaluating whether they are suitable for your financial goals.

Why Market Volatility Can Disrupt Retirement Plans

Market volatility refers to large or frequent swings in the value of investments, which can pose significant challenges for retirees and those nearing retirement. Unlike younger investors who have time to recover from market downturns, retirees often rely on their portfolios to generate current income. A sharp market decline can reduce the value of retirement savings and may force investors to sell assets at a loss to cover living expenses. This not only locks in losses but can also jeopardize the sustainability of their income over time.

In addition, volatility introduces uncertainty into retirement planning. It becomes more difficult to predict how much income savings will be able to provide, and fluctuating investment returns can lead to uneven cash flow. For individuals who have structured their retirement around a specific withdrawal rate, market instability can erode confidence and force adjustments to spending or lifestyle. Addressing these risks requires thoughtful planning and the inclusion of income sources that are less exposed to short-term market movements.

How Fixed and Fixed Index Annuities Offer Stability

Fixed and fixed index annuities can provide a level of stability that is appealing during periods of market volatility. These annuities are insurance products designed to offer principal protection and consistent income. While they are not designed for growth in the same way as stocks, they serve a different purpose: helping to safeguard assets and provide predictable income over time. Because they are not directly tied to stock market performance, fixed and fixed index annuities can help reduce a retiree’s exposure to short-term market risk.

Here are key ways these annuities contribute to stability:

• Principal protection, as the value of a fixed or fixed index annuity will not decline due to market downturns.
• Predictable income, with options to receive regular payments that help cover essential expenses.
• Tax-deferred growth, allowing interest earnings to accumulate without current taxation until withdrawn.
• Diversification, adding a component to a portfolio that behaves differently than stocks or bonds.
• Reduced emotional decision-making, since annuity income is not subject to daily market fluctuations.

Using Annuities to Create Predictable Income Streams

One of the primary advantages of annuities is their ability to provide predictable income, which can be particularly valuable during periods of market volatility. By converting a portion of retirement savings into an annuity, individuals can establish a steady stream of income that is not subject to market ups and downs. This income can be used to cover essential living expenses such as housing, food, healthcare, and utilities, helping to ensure that basic needs are met even when markets are unstable.

The use of annuities as a source of guaranteed income has become increasingly popular. In 2023, total U.S. annuity sales reached a record $385 billion, reflecting strong demand from investors seeking stability in uncertain market environments (LIMRA, 2024, U.S. Individual Annuity Sales Survey, https://www.limra.com/en/newsroom/news-releases/2024/limra-2023-annual-annuity-sales-reach-all-time-high/). While annuities are not appropriate for every investor, they can serve as a valuable component of a broader income strategy, particularly for those who prioritize income certainty and risk reduction.

Balancing Annuities With Other Investments

While annuities can offer stability and predictable income, they are typically most effective when used as part of a well-diversified financial plan. Relying solely on annuities may limit growth potential, as these products are generally not designed to deliver the same level of returns as equities. For this reason, many investors choose to balance annuities with other investments—such as stocks, bonds, and mutual funds—that can provide opportunities for growth and liquidity.

Here are a few considerations when balancing annuities with other investments:

• Use annuities to cover essential expenses, helping to ensure basic needs are met regardless of market conditions.
• Allocate a portion of assets to equities, which can provide long-term growth potential and help offset inflation.
• Maintain a diversified bond portfolio, which can offer additional income and stability.
• Keep some assets liquid, allowing for flexibility to address unexpected expenses or take advantage of market opportunities.
• Periodically review your portfolio, adjusting the balance between annuities and other investments as your needs and market conditions evolve.

When Annuities May Make Sense in Your Financial Plan

Annuities may be a useful tool for individuals seeking to reduce investment risk and secure a reliable income stream in retirement. They are often considered by those who are particularly concerned about market volatility, longevity risk (the risk of outliving savings), or the desire for stable income to cover essential living expenses. Fixed and fixed index annuities can offer a level of certainty that complements the more variable nature of stocks and bonds, helping to create a more balanced and resilient financial plan.

However, annuities are not one-size-fits-all solutions. Factors such as your age, financial goals, time horizon, and existing investment mix should all be carefully evaluated before incorporating an annuity into your strategy. Additionally, it is important to understand the features, costs, and limitations of any annuity product you are considering. Consulting with a qualified financial professional can help you assess whether an annuity aligns with your broader retirement plan and personal objectives.

Bringing It All Together for a More Stable Retirement Plan

Market volatility can be unsettling, particularly for those approaching or living in retirement. Sharp market swings may disrupt income plans and create uncertainty about the future. While no single product eliminates all risks, annuities can offer a layer of stability within a diversified retirement strategy. Fixed and fixed index annuities, in particular, can provide principal protection and predictable income, helping retirees cover essential expenses even during turbulent market periods.

When thoughtfully integrated with other investments, annuities can contribute to a more balanced and resilient financial plan. As with any financial decision, it is important to carefully evaluate your individual goals, risk tolerance, and broader portfolio before incorporating an annuity. By working with a qualified financial professional, you can determine whether an annuity aligns with your needs and helps support your long-term retirement security.