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Portfolio > Economy & Markets > Fixed Income

3 tips for success when positioning a fixed immediate annuity

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Single premium immediate annuities (SPIA) are great fixed insurance vehicles for clients who are looking for a guaranteed stream of income. Payments can be structured to meet a client’s specific needs.

However, I’ve recently seen a trend of advisors recommending elaborate riders to “help” a client’s investment along. More often than not, these riders aren’t needed and can often reduce a client’s overall earning potential.

A simple, straightforward annuity sale can help ensure your clients get the most bang for their buck and meet their investment goals. Instead of positioning a deferred annuity or a fixed indexed annuity with an income rider, in many cases, a fixed immediate annuity is the right option. The following tips can help determine if this choice is right for your clients:

Tip 1: Get to know your clients’ financial goals

Fixed annuities are a great investment vehicle, especially for clients who are nearing retirement age and looking for a safe place to accumulate their funds before retirement. However, it’s important to get a grasp on their long-term goals to ensure you’re recommending the right purchase.

To help do this, ask your client if they need immediate access to income and how much money they need in the next five years. The answers to these questions will help you gain insight into your client’s timeline for accessing their money and determine if an immediate or fixed indexed annuity is the right choice.

Tip 2: Avoid recommending potentially unnecessary riders 

Many advisors go into a sale recommending the most robust annuity possible. This may include adding numerous bells and whistles in the form of elaborate riders, such as a guarantee minimum withdrawal benefit rider, to generate an income stream.

Depending on your client’s financial goals, this type of rider can significantly reduce his or her earning potential. Immediate annuities provide clients with instantaneous access to their money — almost negating the need for a rider altogether. 

Tip 3: Present multiple payout scenarios

Once you’ve determined that an immediate annuity or SPIA is the right approach, you can then determine how your clients would like to structure payouts. There are dozens of ways clients can structure payouts to meet their needs and minimize the need for a rider to access their income. Here are a few of the most popular payout options:

  • Joint life. This option provides income for two people, as long as either client is alive. When one client passes away, payments continue to the survivor.

  • Period-certain only. Clients can target how long they need an income stream. If they pass away before the end of the certain period, remaining payments continue to the designated beneficiary.  

  • Life with a period-certain. In this scenario, the annuity sponsor will pay out income for a client’s lifetime. If the client were to pass away prior to the end of the certain period elected, the beneficiary receives the remaining payments.

  • Life only. This is the least-commonly selected payout. When your client passes away, payments cease — no matter what. This can be risky, but the upside is this option provides the highest payouts.

Taking a thoughtful approach to helping your clients select the right investment helps ensure they’re selecting a smart investment and getting the most bang for their buck. This consideration also helps position you as a trusted resource who is looking out for their best interests.

See also:

Top 5 reasons to buy a fixed annuity

Does your under age 60 client need income? Use a SPIA.

Medicaid planning & SPIAs

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