One Way to Avoid a Potential White-Knuckle Ride Through Retirement
With a bull market entering its 11th year, retirees need to protect themselves from stomach-dropping volatility. Annuities can be one tool to consider.

Have you ever noticed how few people over 60 years old are in line for the roller coasters at a theme park?
You see plenty of older visitors enjoying the other attractions, but the cars on the big coasters are typically filled with riders 40 or younger.
I’ve never seen an age restriction for older riders, so it isn’t that they aren’t permitted to ride (unless they have a medical condition, of course). More likely, these folks simply choose to pass on the jolts, drops and motion sickness that could ruin an entire day.

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When financial professionals talk to clients 60 or older about reducing their exposure to risk, it’s with that same thought in mind: It’s not that pre-retirees and retirees can’t hold investments that might fluctuate with a company's profitability and earnings, or rise and fall with the overall economy. It’s that they might not want to — especially if they’ll depend on those investments for retirement income.
While investors have enjoyed an almost 11-year stretch of relative calm in their portfolios, market volatility in recent months is a reminder that the adage “what goes up must come down” remains true. It’s been a fun ride, but bull markets don’t last forever, and gains can be lost in just one dizzying day.
Now, you can close your eyes, hold on tight and hope you’ll pull through when the market bumps or plummets — and some people do. It can be tough to dial down the risk in your portfolio when you’ve grown accustomed to the exhilaration of the market.
But what if there was a way to participate in the growth of good days and help protect yourself from the drops of bad days? What if the same investment could create a steady retirement income stream that will last as long as you? And, what if you could add coverage for the long-term care you might need in later years?
It may seem too good to be true, but annuities make it possible to reap the upside of the market, avoid the downside and prepare for retirement.
I know — annuities have gotten a bad reputation throughout the years with investors and some advisers, often for good reason. The contracts can be confusing, and many include “hidden” fees and/or surrender costs. Annuities aren’t liquid, which can make it difficult to get to your money if you need it in an emergency. It doesn’t help that some insurance agents push annuities onto people who don’t need them, just so they can get the high commission payouts insurance companies offer.
So, yes, some caution is in order. There are hundreds of annuities on the market, most of which can be bad. Even those that are good aren’t a fit for every portfolio. However, annuities that are structured in the right way can be a powerful tool when paired with the right people.
Take for example Roger and Sarah, who came to me with concerns about having enough money in retirement even though they had accumulated a healthy $4 million nest egg.
Roger was worried about a white-knuckle ride through retirement with a portfolio he felt was too vulnerable to volatility. Sarah, whose parents had both lived long lives, fretted over the possibility that she and Roger might outlive their money. Neither of them had a pension, and it would take about $200,000 annually to maintain their current lifestyle in retirement.
Instead of relying almost completely on variable sources of income (investment dividends, bond payments, etc.) to make up the bulk of their income, we decided to put 25% of their portfolio into a fixed indexed annuity to help create a reliable income stream. Combined with their Social Security benefits, the annuity will cover half of their desired retirement income every year.
When you’re deciding if an annuity is right for you, keep in mind that each type has its pros and cons. There are three main categories: fixed (the annuity pays a set amount for the length of the agreement); variable (the payment fluctuates based on the performance of the fund in which you’re invested); and fixed-indexed (a hybrid annuity that takes some features from the other two). Payouts can be immediate (beginning as soon as you invest a lump sum) or deferred (beginning at some future point).
For many individuals and couples, a fixed-indexed annuity is a good fit because it comes with the following benefits:
- You can participate in market growth. Funds within the annuity are linked to a market index, which allows investors to take advantage of stock market gains.
- You’re protected against market drops. Most fixed-indexed annuities offer a hedge against market losses. You won’t earn anything if the market dips or dives, but you won’t lose any gains. Of course, gains typically are capped, so basically you don’t get the high highs of the market, but you are protected against the lows.
- You’ll experience tax-deferred growth. Investment earnings within the annuity grow tax-free until you begin withdrawals.
- You may be able to build in increases to deal with inflation. Some annuities can increase your payments each year, to help you keep your purchasing power as you move through retirement. There are costs involved for getting this guarantee, and the fee depends on the vehicle, often in the 1% range.
- You’ll create guaranteed income for yourself (and your spouse). This can be especially beneficial for a couple without a pension. Essentially, you’re creating your own retirement plan.
- You can add a long-term care rider. Does longevity run in your family? You might need a nursing home or expensive in-home care when you get older. Many annuities offer the option to add long-term care coverage at a much lower cost than a stand-alone long-term care policy.
Even with all their pros, fixed-indexed annuities aren’t for everyone. Before you shift some of your hard-earned savings to any type of annuity, you should talk to a trusted, independent adviser about the options available and how this strategy fits into your overall retirement plan.
Kim Franke-Folstad contributed to this article.
Investment Advisory Services offered through Goldstone Financial Group, LLC a Registered Investment Adviser (GFG). GFG is located at One Lincoln Centre, 18W140 Butterfield Rd, 14th Floor, Oakbrook Terrace, IL 60181. Telephone: 630-620-9300. Investing involves risk, including the potential loss of principal. Any references to lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Riders are generally optional and have an additional associated cost. Fixed index annuities are designed to meet long-term needs for retirement income. They provide guarantees of principal and credited interest, subject to surrender charges and a death benefit for beneficiaries.

Anthony Pellegrino is one of the founders of Goldstone Financial Group (www.GoldstoneFinancialGroup.com), an SEC Registered Investment Adviser. He is a fiduciary and holds a Series 65 securities license and an Illinois Department of Insurance license. Anthony co-hosts the "Securing Your Financial Future™" television show airing on CBS Sunday mornings following "Face the Nation."
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