A better understanding of annuities can increase consumer appeal

Are workers leaving the possibility of guaranteed income for life on the table without even realizing the opportunity is there in the first place?

This could be happening when it comes to annuities — especially in-plan annuities, which allow existing assets in defined contribution plans to be converted into annuities and used to provide lifetime income throughout retirement. 

That’s an opportunity many organizations and their employees may not be aware of. LIMRA found that nine in 10 defined contribution plans have no in-plan option for generating lifetime-guaranteed income for retiring employees.1 Still, in a survey of private-sector plan sponsors that have at least 10 full-time employees, 49% of those that don’t offer an in-plan annuity say they’ve considered adding one.1

Could the tides be turning toward that benefit and annuities in general? Signs are pointing to “yes,” and to keep this positive trend going, more education for businesses, workers and even financial professionals is essential.

Annuities are gaining ground

In the third quarter of 2023, registered index-linked annuity (RILA) product sales were up 19% compared to the same time last year, standing at $12.6 billion.2 Other annuity products saw gains, too — to the tune of a 10% overall increase over the previous year.2

Plus, research also shows that workers today are more willing to convert assets into lifetime-guaranteed income, with a 14% increase between 2017 and 2023.1 And 70% of workers believe an in-plan guarantee should be an option within their direct contribution plan.3

The appetite is there, so how can annuities receive even more attention as a viable means of retirement income?

Moving an employer plan into an annuity

One aspect that could use significantly more attention is the possibility of using assets from a retirement plan for 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 In many cases, pension plans have been replaced by an employer-sponsored 401(k) or 403(b) plan.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 with concerns over the absence of guaranteed income may not be aware that they can use their workplace retirement savings to create their own steady stream of income with an annuity, such as the Zone Income™ 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 just as long as they do. That could help alleviate the fear many people have of outliving their savings.

Some of your clients may be concerned about 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, though taxes are withheld from a distribution from a retirement plan in that instance.4

Greater education about annuities

While annuities continue to rise in popularity, they typically don’t get the same kind of recognition as 401(k) or other, more common retirement plans.

Outdated perceptions about annuities may still be prevalent, such as 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 designed to align with various risk tolerances and investor scenarios, and newer products have arrived on the scene that are less complex and confusing than those of the past. The individualization of annuities could prove enticing to some of your clients who might be on the fence about the whole idea.

The next time you meet with your clients, consider asking questions to gauge their interest in annuities, including exploratory questions that could help you discern their level of knowledge about these and other retirement planning topics.

To help you guide those conversations, access our Elevate™ Advanced Planning Resources. This library of resources is available to TruStage™-appointed financial professionals and can help you expand your own knowledge, making it easier to discuss everything annuities have to offer. You can access these complimentary resources below.

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