When It's Right to Recommend an Annuity, Consider These Four

Mar 3, 2020 Share This 

Four_AnnuitiesYou know annuities can be powerful tools, yet aren’t the right strategy for everyone or every situation. And annuities vary so widely in what they can do, it really requires some searching to determine an annuity’s effectiveness for each client’s situation.

Some clients seek accumulation of savings, some want income (a dependable “paycheck” to supplement other retirement income), and some want to prioritize their legacy. This article explores four powerful categories of annuities — and when each makes good sense.

1. Registered Index-Linked Annuities

Along with leaving a legacy, your client, Jonathan, is focused on accumulating wealth. He’d like to participate in the market — double-digit upside growth potential sounds great — while remaining in his comfort zone — guaranteed loss protection sounds even better.

One option may be a registered index-linked annuity, which links to the performance of a market index to calculate gains or losses. This type of annuity can offer a solution to various needs at different phases in life: accumulation, income, and legacy.

  • Downside protection — Jonathan decides how much he’s willing to risk. Once a limit is set, Jonathan can't lose more than that, no matter what happens in the market.
  • Upside potential — Unlike conservative investments, a registered index-linked annuity lets Jonathan participate in market growth. Earn interest is linked to market performance, up to a cap.
  • Control risk — A customized comfort zone lets Jonathan lock in gains and lock out losses.

2. Variable Index-Linked Annuities

Karen, a long-term client, has her mind set on staying invested long-term and riding out volatility. She likes the idea of splitting assets between variable subaccounts and two risk-control platforms.

A solution could be a variable index-linked annuity, an innovative investment platform that combines the flexibility and growth potential of variable funds with customized risk control.

  • Diversified investing — Here’s a way for even nervous investors like Karen to diversify for higher growth potential.
  • Protection for a portion of assets — Risk control accounts offer customized, guaranteed limits on loss.
  • Stay in the market longer — Combining diversification with protection can give Karen the confidence to ride out volatility and remain invested.

3. Income Annuities

Maria is in her early 60s, and she’s thinking about financial security and wants a guaranteed lifetime income solution. She also knows cost-of-living will change and would like an option that adjusts for future income.

Since Maria is nearing retirement, she can create her own pension with a steady stream of income using an income annuity.

  • Fill in the gaps — Social Security only goes so far. Maria can replace her paycheck with income to help cover critical expenses during retirement.
  • Customized options — Flexible payment types and ways to protect beneficiaries let Maria design income that's right for her goals.
  • Guaranteed lifetime income — If Maria is worried about running out of money, an income annuity can help ensure savings last as long as she does or Maria can choose a period certain option.

4. Fixed Annuities

Your client, Alex, has goals to accumulate wealth and then leave a legacy but wonders what the market will do next. He’s conservative and wants a strategy that lets him confidently plan ahead and target a precise retirement goal.

With a fixed annuity, Alex can find relief from the investment roller coaster using a stable, tax-deferred way to grow savings and guarantee income to fuel retirement.

  • Lock in a rate — With competitive, guaranteed rates, fixed annuities provide reliable returns in an uncertain environment.
  • Defer taxes — Unlike other conservative investments, like CDs, no taxes are paid on annuity earnings as they accumulate — so money grows faster.
  • Protect principal — Alex can stop worrying about what the market will do next. Retirement savings can grow without the risk of loss.

As you know, there’s no single best way to fund retirement. Some clients want guaranteed income, some risk-controlled growth, and others death benefits that provide for loved ones. Alex, Maria, Karen, Jonathan, and all of your clients can find the product(s) for their needs within this family of annuities.

Annuities are tools which can work properly in the correct scenario, depending on specific facts and circumstances. Our easy-to-read infographic, Bring the Power & Potential of Annuities to Your Clients, helps you explore different annuity contracts and when to include them in your offerings.

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There are distinct differences between fixed annuities and share certificates & guaranteed fixed income instruments sold through the credit union. Most certificates are considered a short term investment. An annuity is considered a long term investment. The investment in a certificate is insured by the federal government, either through FDIC or NCUA. The investment in a fixed annuity is guaranteed by an insurance company. Like Certificates, fixed annuities have a penalty for early surrender, and withdrawals taken before the age of 59 ½ from an annuity may be subject to a 10% federal tax penalty.


Topics: Client Relationships, Retirement Planning