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Life Health > Annuities

How To Seize The Annuity Opportunity

By Michael Pinkans

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On the cutting edge of the baby boom generation, former President Bill Clinton, turned 61 in 2007. There’s not much time before he, and others, turn 65. Will they be ready to retire?

Commercials and other marketing materials show retirement as being a time of activity, not rest. They speak of retirees creating new beginnings, not preparing for the end of life. But, given today’s economic challenges, how can such outcomes possibly occur for many of those boomers?

Consumer-friendly annuities can be part of the solution.

While perhaps not as sexy as other types of investments, annuities can be the perfect solution to help customers get over their fears of today’s challenging economy. Now is the time for advisors to seize this opportunity. Whether the goal is accumulation, distribution or even covering living benefits such as long term care, annuities can be the answer. Here are some product advantages about which boomers should know.

Accumulation. For those who still need to accumulate in the pre-retirement phase, there are annuities with interest rate guarantees for multiple durations. Everything from 2- to 10-year rate guarantees is available from dozens of insurers.

What about addressing needs of customers who are concerned about bond volatility? Products with upside potential tied to a U.S. Treasury index can be a good alternative to bonds. One annuity company offers a product with a minimum interest rate guarantee but also helps offset inflation with interest crediting that is tied to the 5-year U.S. Constant Maturity Treasury rate. This provides less volatility than using a regular bond index.

For customers who do want the possibility of more upside potential with downside protection, consumer-friendly fixed index annuities can be the answer. Currently, some insurers are taking a new direction with these products, offering features such as performance-based triggers. Here, the customer gets a strong fixed rate but if the index has any positive movement (even 1 basis point) during the next year they get a very strong credited rate.

Distribution. The benefit of owning annuities is the potential income stream they can provide, even on a guaranteed basis. Whether fixed for a certain period of years or for life, annuities are the only financial vehicle that can guarantee that the customer can’t outlive the annuity income.

Some companies have begun going a step further by not only guaranteeing income for life but also guaranteeing increased payouts based on an index such as the Consumer Price Index. This approach to income allows customers to rest easy at night, knowing that not only will they not outlive their annuity income but more importantly, that their annuity income will increase on a set schedule in step with overall price increases.

Living benefits. Increased health care costs are a fact of life. Not only are more people living longer but also the medical advances that keep people alive and productive have a high monetary cost. How can boomers help maintain control of their assets, protect their beneficiaries and still have access to long term care benefits if needed?

Given the tax law changes that go into effect in 2010–changes that allow tax advantaged distributions from annuities for LTC payments–many carriers are now starting to deliver this type of combination product, an annuity with LTC benefits.

One carrier combines a deferred fixed rate annuity with built-in LTC benefits. It can help protect the customer’s retirement assets by paying up to 3 times the annuity value (at time of first claim) in LTC benefits over at least 6 years. And if LTC is never needed, the customer will still have the annuity with a guaranteed interest rate adding to retirement funds.

As baby boomers approach retirement, many are sensing that there’s a new perception about what retirement can truly be. From a physical perspective, anything appears to be possible to keep a youthful and exciting look. But it’s only the insurance industry that can provide the financial security on a guaranteed basis, to allow people to live in comfort for their entire lifetime.

The annuity opportunity for producers should focus on consumer-friendly products that can provide a host of features whether the goal is accumulation, distribution or living benefit coverage. Smart, consumer-focused producers will gravitate to this type of sale very quickly.

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