There’s a simple way to get more 401(k) participants to buy annuities: remember that most participants are not financial analysts. Most are “the rest of us,” or TROUs in this discussion.
TROUs range from the slightly math averse to borderline innumerates. They appreciate restaurant bills showing suggested gratuities, and retail displays showing 35%-off pricing as “today” versus “regularly.”
This doesn’t mean TROUs aren’t smart. They just don’t process numbers the way financial experts do. Annuity sellers who want TROUs as clients and customers approach TROUS accordingly. If they don’t, they’ll miss out on a sizeable potential customer base.
Simply put, most TROUs are clueless about annuities. That’s why they don’t call. So, trying to “sell” annuities to them–in the traditional meaning of selling–is often a waste of time.
A better approach is to help them “discover” annuities. That uncovers their need and desire to buy.
The key is to present ideas in ways TROUs immediately understand. For example, they understand shopping. So why not present the financial aspects of retirement as the same as other purchases?
Here’s how: start by helping TROUs discover what retirement financial lifestyle they want to purchase. Give them a clear and easy way to estimate the price of that lifestyle. Then, help them find the discounts. Finally, let them see the value of a lifetime guarantee.
Rather than telling them how much to spend each year and how long they’ll need it, involve TROUs in discovering those amounts. Ask big-picture questions like, do you want to live in a bungalow or a fancy beach condo? Stay where you are or on cruise ships? Stop working as soon as possible or keep going as long as you can? Spend more, the same or less than now?
Use the answers to show how the ‘retail price’ is set. Here’s an example:
“You said you’d like to spend $40,000 a year, maybe for 25 years–from age 65 to 90. To get your estimated retail price, we’ll simply multiply $40,000 times 25 years … that’s (pause) $1,000,000.”
Expect to hear, “Wow! No one ever explained it like that before.”
This simple approach helps TROUs discover the impact and risk of longevity.