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Retirement Planning > Retirement Investing > Annuity Investing

How to overcome your client’s annuity misconceptions

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As a broker, you are poised to profoundly affect your client’s financial decisions by bringing them sound advice and recommending the best vehicles for their hard-earned retirement dollars

Many brokers have found that recommending a fixed annuity can help clients gain an advantage and maintain peace of mind leading up to and during retirement.

Many potential purchasers are unaware of the benefits of a fixed annuity purchase

Consider the following misconceptions clients often have, and learn how you can help inform them about how an annuity can actually help them realize their objectives for retirement or financial planning for beneficiaries.

risk aversion

Misconception No. 1: Why should I invest in an annuity when I can possibly make more elsewhere?

The 2008 market downturn created uncertainty about where and how to invest retirement dollars. Investors learned that market changes don’t always mean big returns, and as such, have developed a lower tolerance for risk. This, coupled with the fact that people are living longer and need to rely on retirement income for a longer period of time, makes considerations about where to store or invest retirement dollars increasingly important.

Because of this aversion to risk, many clients have found a fixed annuity purchase can help enhance their investment goals. Fixed annuities provide a guaranteed rate of return and are a practical option for investors who don’t want to gamble with money they’ve worked hard to accumulate for retirement. A deferred annuity enables workers to accumulate savings on a tax-deferred basis, until it’s distributed.  

When broaching this subject with clients, brokers should talk through how an annuity can help a client accumulate savings, but in a way that protects their initial investment while still accruing additional funds.

only retirees invest

Misconception No. 2: Only retirees purchase fixed annuities.

Contrary to ads on daytime television, a fixed annuity purchase is ideal for someone who is still in the workforce. Purchasers of all ages, not just those nearing retirement, can protect their nest egg and benefit from a fixed annuity purchase.    

While maintaining the investment amount is an important consideration, new annuities purchasers also are interested in how they will actually be paid out. As clients investigate options to protect and grow their retirement dollars, brokers should mention important aspects in terms of the payment stream:

  • An annuity can be timed to start distributions on or around a purchaser’s retirement date, ensuring that funds are available to help maintain the purchaser’s standard of living.
  • An annuity can be timed to start distributions for a specific period of time or to ensure a purchaser cannot outlive his or her income.

Depending on the purchaser’s choice for distribution — a payment stream, or in some situations, a one-time lump-sum payment — a fixed annuity ensures that a nest egg is fully protected and available to the purchaser when he or she is ready to use it.


Misconception No. 3: I’ll purchase an annuity — when interest rates are higher.

Even in today’s low-interest-rate environment, a fixed annuity’s compound growth and tax-deferral status can help a purchaser’s retirement savings grow faster than he or she may think possible. Consider the following:

  • If a purchaser put $50,000 into a five-year guaranteed annuity paying 2 percent, he or she would be guaranteed $55,204 at the end of five years without early withdrawals.[1]
  • Waiting one year to invest $50,000 in a fixed annuity, the money would have to earn 2.51 percent annually for four years to catch up with the investor who purchased an annuity now.
  • If a purchaser waits two years,it would take three years at 3.36 percent annually to achieve the same earnings.

Emphasizing these numbers can help make the case that a fixed annuity is worth investigating sooner rather than later.

complex business

Misconception No. 4: A fixed annuity won’t be able to accommodate my complex beneficiary situation.

Like life insurance death proceeds, annuity carriers typically distribute proceeds as a lump sum to one beneficiary. However, there are times when an annuity purchaser wants to control how the proceeds from an annuity are disbursed. Perhaps there are multiple beneficiaries, a beneficiary isn’t good at managing money or the purchaser wants to know the beneficiaries will receive a guaranteed income stream for their lives or for a designated period of time. 

Brokers can help a purchaser allocate money from a fixed annuity to a single or multiple beneficiaries by recommending an annuity carrier that offers a restrictive beneficiary designation endorsement. A restrictive beneficiary designation endorsement gives the purchaser the opportunity to make decisions about how the accumulated value in an annuity will be disbursed among beneficiaries. This takes the decision-making out of the hands of beneficiaries who might not be ready for the responsibility and into the hands of the purchaser.

Clearing up misconceptions your clients may have when considering their investment options can help pave the way for future success: As your clients realize their investment goals, you can position yourself as a trusted advisor for the long term.


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