Soft economic forecasts are definitely not required for an annuity to be a prudent financial instrument for your clients. But annuities sometimes intimidate consumers because a number of them involve complex withdrawal provisions or “roll-ups,” riders, investment features and surrender penalties.
Yet the astute financial professional engaged in writing annuities has to consider situational suitability in addition to working out the mathematics, such as in when to put a fixed annuity to work.
Working backward is what retirement market specialist and certified financial planner Ann Hauser Laufman, CFP©, LUTCF, CFS, CFBS, refers to often when asked about her methodology.
“It is definitely smart to focus first on the main problem the potential client is interested in an answer to,” says Laufman, a 20-year-industry veteran and top producer at Boston-based Massachusetts Mutual’s Houston office. “Today, it is more living expenses than exclusively wealth management.”
In that regard, a fixed annuity transfers the risk from the investor to an A-rated insurance organization regulated by state insurance departments, notes Laufman.
Here are two case studies from Laufman in which an annuity proved to be the answer:
Case Study I
In the case of a 71-year-old male with $2 million in assets and concerned with bridging Social Security income with cost-of-living expenses, a SPIA (single premium immediate annuity) turned out to be a good option for two reasons:
- Longevity genes run in the family (and a healthy annuitant).
- A SPIA provides adequate discretionary funds for a cash flow-conscious client.
Case Study II
Most consumers and portfolio managers think retirement income when they think annuity. Yet, in this instance, capitalizing upon the tax-deferred, compounding-interest nature of the fixed deferred annuity in the form of a VEBA (voluntary executive bonus annuity) is a good choice.