Whether it’s a debate over the best movie of all time or the greatest quarterback to ever play in the NFL, it’s hard to overcome deeply ingrained beliefs. Emotions can run high and cloud a person’s judgment, leading to a misguided view that may be a stretch from reality.
These types of philosophical disagreements typically have little consequence, no matter which side prevails. When someone’s misguided beliefs are directed toward finances and retirement strategies, however, the stakes are much higher.
One such misunderstanding may involve a person’s options for turning their workplace savings into lifetime guaranteed income. Turns out, only one in four consumers realize that annuities can be purchased with the money that is saved in workplace retirement plans, such as 401(k) and 403(b) plans, according to LIMRA’s Secure Retirement Institute®.1
What does this mean for advisors, and how can they help improve financial literacy among clients to help them make informed decisions?
A Need for Greater Education About Annuities
The more consumers know about annuities, the better they feel about them. When quizzed about annuities, 63% of those who had a higher number of correct answers had a positive view, compared with only 27% of those who scored poorly. What’s more, those with more knowledge are also more likely to be interested in annuitizing a portion of their retirement assets than those with low levels of knowledge (37% vs. 15%). Not surprisingly, those who actually own an annuity are more than twice as likely to view the products positively, compared to non-owners (83% to 41%).1
These findings demonstrate the need for advisors to educate their clients about retirement income options as it relates to their paychecks, and showcases opportunities for positioning guaranteed income products that may help them reach their retirement goals.
Overcoming annuity myths and misconceptions isn’t necessarily new territory for advisors. Outdated perceptions about annuities may still prevail, like beliefs that annuity proceeds can’t be passed down to beneficiaries or that money in some types of annuities can’t experience gains in value with the stock market — or losses, for that matter. In fact, many of your clients may not be aware that there are several types of annuities that are designed to align with various risk tolerances and investor scenarios, and newer products have come on the scene that are less complex and confusing than those of the past.
Moving an Employer Plan into an Annuity
The decline in the number of pension plans offered by employers is well known. In many cases, pension plans have been replaced by an employer-sponsored 401(k) or 403(b) plan. While some of these options may perform well over time, there’s also the potential for losses.
Those approaching retirement who have concerns over the absence of guaranteed income may not be aware that they can use their workplace retirement savings to create their own “pension” with an annuity, such as the Zone IncomeTM Annuity. This product allows your clients to still enjoy the potential for double digit market growth up to a certain cap without the worry of substantial losses based on a set floor. Meanwhile, it can help ensure savings last as long as they do.
Of concern to many clients, however, are the tax implications of moving a portion or all of their employer-sponsored plan to an annuity. To help ease these concerns, it’s important to stress that rolling over their qualified 401(k) or similar plan into another qualified plan, such as an annuity, allows their savings to continue to grow tax deferred. The rollover can be facilitated by their plan administrator as a direct transfer or, if the payment is made directly to the employee, they have 60 days to deposit it into a qualified annuity without penalty.2
The next time you meet with your clients, consider asking questions to gauge their interest in annuities, including exploratory questions that may help you discern their level of knowledge about these and other retirement planning topics. You may be surprised to learn that they could benefit from some education.
To help you guide those conversations, access our ElevateTM Advanced Planning Resources. This library of resources is available to CUNA Mutual Group-appointed advisors and can help you expand your own knowledge. Access these complimentary resources below.
1 LIMRA, Secure Retirement Institute Study: Most Consumers Baffled By Annuities, April 27, 2020.
2 Internal Revenue Service, Rollovers of Retirement Plan and IRA Distributions, January 12, 2021.