In a recent post, I outlined the importance of understanding your client’s goals to help determine if a fixed immediate annuity purchase is the right recommendation.
But what if your client wants to accumulate savings to draw income from in the future? For a client who wants income down the road, position a fixed deferred annuity, which will allow him or her to turn on — or annuitize — their income stream at a later date. The following tips will help you make that recommendation and ensure your clients are positioned well long-term.
Tip 1: Determine if your clients are looking to accumulate savings for later, or income now
One of the most important questions to ask your clients at the outset is if they’re looking to accumulate savings or if they are in need of an immediate income stream. Fixed deferred annuities are a great option for individuals looking to accumulate funds for use later — either for their own personal use or as part of a wealth transfer option to a loved one.
Tip 2: Assess your client’s risk tolerance
Fixed deferred annuities are great for clients with low risk tolerance who want growth as well as strong guarantees. They know their hard-earned savings will be there if and when the need arises. In many cases, clients seeking to purchase a fixed deferred annuity have absolutely no plans to ever tap into the accumulated value but want the safety net of knowing they can.
Tip 3: Avoid recommending elaborate riders
Many annuity recommendations come with unnecessary elaborate fee-based riders that can end up reducing earnings potential for wealth accumulation. Avoid positioning these type of income benefits to people who aren’t going to use them, as the fees tied to riders can eat away at any potential, or even previously credited, earnings. Fixed deferred annuities have an income stream built into the chassis, negating the need for an income access rider.
For example, we recently saw how this type of benefit rider took a toll on a client’s policy. A client who purchased an annuity with $1 million in premium paid more than $160,000 for this type of access — a benefit the client wasn’t going to use. Although this may sound like an extreme example, the point is valid. Paying for a feature they will never use reduces an annuity owner’s earning power.
Tip 4: Explain the payment streams available in deferred annuities
Deferred annuities all have a fundamental income stream feature that allows the annuity owner to elect a guaranteed payment stream on or before the annuity’s maturity date at no charge.
Following these four tips will set your clients on the right path to secure savings accumulation and solidify your status as a trusted financial partner.
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