Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Retirement Planning > Retirement Investing > Annuity Investing

Try saying this instead...

Your article was successfully shared with the contacts you provided.

Losses are more vivid than gains. A 4 percent index annuity crediting cap offers 3 percent more potential interest than a certificate of deposit renewing at 1 percent, but it’s still only 4 percent. Therefore, try explaining the difference to the prospect this way: “If you stay in the CD you lose 75 percent of the interest you might earn in the index annuity.” To most people, potential losses result in a stronger reaction than thinking about potential gains.

Make the number bigger
A multi-year annuity rate of 3 percent is 1.5 percent higher than a CD rate of 1.5 percent, but try saying, “The annuity rate is 150 basis points higher than the CD” or maybe “This annuity pays 100 percent more.”

Change years into months
Instead of explaining that the multi-year annuity rate is guaranteed for four years, say: “You are guaranteed to earn this rate for the next 48 months.” It also helps to explain that the annuity living benefit income roll-up rate will increase for the next 120 months instead of saying 10 years (but you may want to use years as units if the surrender charge lasts 144 months).

Expand the reference scale
A $5,000 surrender charge on a $50,000 annuity is a 10 percent potential penalty. But if the annuity is referenced as a part of the client’s total $500,000 worth of assets, then the potential liquidity penalty is only 1 percent. “As you can see, by adding the annuity to your other assets you keep the maximum possible liquidity charge to no more than 1 percent.” It also wouldn’t hurt to add: “Do you see yourself spending more than $450,000 in the next (length of surrender period) years?” A penalty not incurred is not a penalty.

Explain surrender penalties as a liquidity cost
Some people say deferred annuities are illiquid, but what they really mean is they have surrender penalties. However, a penalty or fee to get liquid is not the same thing as illiquid. To get the point across try this, “If you sell a share of stock you will usually get charged a commission or fee to sell the stock and get your money. Does that mean stocks are illiquid?”

If the prospect agrees that paying a commission to sell a stock does not make the stock illiquid, then they have to logically accept the fact that paying a fee to get money from an annuity does not make the annuity illiquid.

When you get the prospect to agree that liquidity comes at a cost, then the focus changes from a battle of liquid versus illiquid to a discussion of whether the possible liquidity cost on the annuity is offset by the benefits.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.