Any opportunity you have to educate clients about investment options is a good one. Portfolios with traditionally recommended platforms may not include a potentially valuable segment of investment options: annuities.
Clients (and even some advisors) may have preconceived ideas about annuity products — some of them negative or downright false. However, modern annuities with guaranteed lifetime withdrawal benefits may be an appropriate investment vehicle to help carry certain clients through their retirement years.
Use these questions to assess your client’s needs and whether annuities may be an appropriate investment vehicle.
What is your biggest fear in retirement?
As an advisor, there’s a propensity to focus on objectives and what clients want to accomplish in retirement. In response, they may discuss travel plans, time for hobbies, volunteering, or dreams of a vacation home. Inquiring about goals is definitely important, but a question that may be more valuable and reveal a client’s deepest wishes is one that asks about their deepest fears.
One of the biggest dilemmas for many investors approaching retirement is the uncertainty over whether they’ll outlive their money. Many underlying fears may lead to this reality for some: an unexpected crisis, healthcare expenses, another market crash, or simply living to a ripe old age. Recommending an annuity with guaranteed lifetime withdrawal benefits may be an ideal strategy for those who fear not having a steady paycheck. Some annuity products offer downside protection with upside potential, helping to ease fears about market loss.
Have you considered how annuities may help pay for unexpected expenses?
Advisors and clients may disagree about when expenses will be highest in retirement. Some feel that spending will be substantially more in early retirement due to travel and other activities, while others believe expenses will be higher later due to declining health, inflation and other factors. No matter when those expenses hit, however, investors need to be able to cover them.
Some investors choose to purchase an annuity to mitigate longevity risks and to help cover potential expenses for nursing homes or in-home care. The number of seniors who will eventually require such care could be significant along with the costs. While Medicaid may help, seniors need to be aware of any specific eligibility requirements and may need to purchase a long-term care insurance policy to cover expenses. The guaranteed income from an annuity may provide the security they’re looking for.
Do you value guaranteed income in retirement?
This may seem to have an obvious answer. After all, who wouldn’t like a guarantee? For many, Social Security may be their only source of guaranteed income…for now. Some investors are uncertain about the future of the program and, if those benefits were to decrease, it could throw a wrench in their retirement plans. Social Security benefits are a valuable and relied-upon source of income for many retirees.
Perhaps you’ve already had conversations with your clients about how these benefits may not provide adequate funds. If not, encourage them to calculate their projected monthly Social Security income using the program’s online tools. Upon discovering that figure, some clients may realize that they need to bridge the gap between Social Security and essential expenses, let alone maintain their desired standard of living. Including an additional guaranteed income stream with an annuity as part of their investment portfolio may be a welcome prospect.
What comes to mind when you hear “annuity?”
Depending on how financially savvy a client is, their answer to this question may range from a strongly voiced opinion to a blank stare. For some, annuities carry with them a stigma, believing them to be expensive, difficult to understand, or that they limit access to funds when needed. Others may know very little about what an annuity is or how it works.
Prior to recommending an annuity, it’s important to gain an understanding of your client’s current perception. If your client holds a negative view, you may need to clarify the differences among various types of annuities. Your client may not be aware that there are multiple options that include varying fee structures, payout options and benefits. On the other hand, clients who are unfamiliar with annuities present an opportunity to educate them on the benefits of including them as part of a diversified portfolio along with traditional stocks and bonds.
Have you considered newer annuity products on the market?
Chances are, many of your clients may not be scouring the internet to explore investment options. They’ll likely rely on you for those kinds of recommendations. Some clients may not be aware that there are affordable annuity products available to them, or that many allow policyholders to access the money when they need it.
Likewise, unlike many products of the past, there are annuities available today that are straightforward and easier to understand. Reducing uncertainty and complexity is a key to helping your clients feel confident in their investment decisions, and an annuity with a guaranteed lifetime withdrawal benefit may offer the stability they’re hoping for.
There are many more questions you can ask clients to guide your conversation, but some advisors may also need to examine their own reservations and biases toward annuity products based on past experiences. Like some consumers, advisors may not have explored alternative products that have come on the market since the old days of complex policies and excessive fees.
Not all guaranteed annuities are created equal. That’s the story behind the helpful guide we created for advisors. Access our All Guarantees Are Not Created Equal guide below to learn more, and reach out with any questions.
Written by: Chad Mueller, Head of Annuity Sales
Chad is the Head of Annuity Sales for CUNA Mutual Group. In this role, he leads the Annuity Products wholesaling organization, develops and executes the go-to-market wholesale distribution strategy, and is responsible for achieving increased sales and market share objectives. Chad has more than 18 years of experience in the financial services industry and brings a wealth of knowledge focused on retirement planning.