Annuities can be an important piece of your clients’ retirement puzzle. Terms like “tax-deferred” and “low-risk” should be music to the ears of anyone looking for a savings vehicle that will carry them into and through their golden years. But with numerous options available, annuities can become complex. Advisors need to have a clear understanding of their clients’ situations when drafting a retirement plan involving an annuity.
This also means the client needs a clear understanding of how annuities work. While some prospects and clients may be familiar, you should expect that most people will come in knowing little about, or carrying one or more misconceptions about, annuities. It is the latter that will almost always bring objections to overcome.
Below are a few examples of annuity misconceptions/objections you might hear from clients, with tips on how to respond.
Exposure to Market Volatility
This is an easy one. Fixed-indexed annuities are low-risk savings vehicles. While cash value does accumulate based on the performance of a specific stock market index (S&P 500, Dow Jones), the fixed-indexed annuity has no direct exposure to the market. Use recent market volatility due to the coronavirus pandemic or the 2008 crash to highlight this point. When the market tanked, countless retirement accounts went down with it. However, those with fixed annuities came out with their principal investments relatively unscathed. This level of protection should be especially attractive to those who are close to, or at, retirement age and do not have the luxury of waiting for a fluctuating market to recover.
High Management and Contract Fees
Management fees can chip away at the annuity’s cash value. But the same is also true with IRAs and 401(k) plans. Explain that some of those fees can go toward extra layers of protection, such as a Lifetime Income Benefit Rider, or additional options. It’s important the client understands the fees associated with an annuity before making a final decision and realizes that any savings vehicle they use will come at an expense.
No Access to Funds If / When Needed
The ability to access funds in an emergency is a concern for many would-be annuity buyers. While other products may allow low or no-penalty access to funds, annuities do allow for early withdrawals. The penalties involved largely depend on the type of annuity, the annuity owner’s age, and the length of time they’ve had the annuity. When discussing these details, stress that annuities are most effective when left alone to be used as a steady stream of retirement income and are not designed to be liquidated pre-maturity. If this is still a concern, recommend a strategy that includes cash-value life insurance.
Lower Payout / Income Stream in Retirement
Several variables determine what the annuity will pay out each month, and the amount will likely be lower than monthly payments from a pension or 401(k). The key takeaway here is that the client will receive guaranteed, regular payments in retirement. Present this as a classic “risk vs. reward” scenario. One solution might offer higher monthly payments but could leave the client at risk of outliving that income. An annuity that includes a Lifetime Benefit Rider will eliminate that risk and provide a lifetime stream of cash. Some annuities now allow the retiree to pass on any unused balance to a beneficiary upon death. This is also a good time to present solutions that combine an annuity with life insurance, pension, and/or Social Security benefits.
Annuities as a CD Alternative
It’s not always an objection that stands between you and writing more annuity business. Some clients may have some of their retirement income wrapped up in a different product, such as CDs. This situation can present a great opportunity to discuss how an annuity might be a more beneficial solution. Start by comparing the features of CDs and annuities side by side, highlighting the differences in terms of interest rates, liquidity, tax treatment, and potential for growth. Help them understand how these differences may impact their financial situation and long-term goals. You should also encourage them to do their own research on annuities before making a decision. Provide resources, such as educational materials and reputable sources of information, to help them make an informed choice.
We are currently offering those resources for free with the IAMS 2024 CD Replacement Kit. Featuring top annuity rates and plenty of marketing materials, this complementary kit includes
- 2024 Taxable Equivalent Yield chart
- A split-annuity alternative guide and checklist
- CD vs. FIA sales strategies
- An SPL vs. CD calculator
- Prospecting letters, a fillable fact finder, social cards, and post copy
- Going Broke Safely and Market Loss Recovery concepts
- IAMS’ Beyond Capital Transfer guide
