Baby boomers on the beach (Image: Shutterstock) (Image: Shutterstock)

Seventy-six million. That hefty number is the estimated number of baby boomers living today in the United States. We’ve heard a lot about how this generation — those born between 1946 and 1964 — has its own unique challenges when it comes to retirement planning, particularly since it can’t rely on pensions or even Social Security as much as prior generations. As a producer, it’s important to consider how annuities can and should be an important part of a boomer’s retirement portfolio.

(Related: 4 Reasons Selling Annuities Is a Stable Strategy)

You have likely already considered the benefits that annuities can offer to boomers, so it may seem like a novel idea at first. But there are solid reasons to focus on selling to this particular group. Boomers are at the perfect age to benefit from the consistent income stream that annuities can provide, among other benefits I’ll mention below. And, put simply, no other financial products have been developed at the moment that offer the unique value for investment that annuities do. As a result, annuities shouldn’t be overlooked as part of your selling strategy.

It’s important to remember that clients are looking to you to provide an asset accumulation approach that is reliable and will succeed no matter what happens in the stock market. Thus, your approach should include safe options that offer clients what they want most: stability. Because of this, annuities are a strong option that will earn clients’ trust and grow your business at the same time.

Why Baby Boomers?

While annuities offer benefits to clients no matter what their age, boomers are at the stage in their life where they are demanding greater principal protection. This growing demand largely stems from the fact that they are coming closer to the end of their working years, thus they are becoming more financially conservative and can’t afford to lose what savings they’ve accumulated. With their preferences shifting, there is a growing convergence between what they want and what annuities offer.

Thus, more of their asset allocation should be to safer products such as annuities. As they approach and enter retirement, the question becomes what to do with the growing portion that they want to keep safe. Boomers are major investors in mutual funds, but the unpredictable nature of the markets are likely causing increasingly cautious baby boomers to think twice about their existing asset allocation, one that can lead to losses during periods of market volatility.

A major benefit of fixed and indexed annuities is that they are not directly tied to the stock market and are protected from downward swings. This makes annuities an increasingly attractive option for your boomer clients, since they are not susceptible to loss when the market is in turmoil. With interest rates higher now than they were a few years ago, annuities give clients a solid interest rate, along with the safety and protection they seek. Money market funds generally can’t keep up with the interest rate of an annuity, and while bond mutual funds sometimes offer adequate interest rates, they don’t provide the security or protection annuities do in case of market turmoil. Bond mutual fund balances fluctuate daily, whereas annuity values do not.

Approaching the Annuities Conversation

What should you keep in mind as you talk to your clients about which financial vehicles to choose? In regard to annuities, there are numerous benefits.

  • Safety: Annuities can provide superior safety over other financial products. That’s because in a fixed or indexed annuity, both a client’s original premium and any credited interest are contractually guaranteed not to lose value unless surrender charges apply. This reassurance can help provide clients the peace of mind that they are truly protected from risk.
  • Flexible Time Frame: The shortest annuity period is three years; the longest is 10. This benefits clients because they don’t have to keep shopping for investment options and moving their money around from one certificate of deposit to another every six months. They know what to expect for a fixed time frame and can prepare based on that.
  • Tax Deferral: Annuities offer control over when they’ll receive taxable income. In an annuity, as long as clients leave money in the annuity, they won’t have to pay taxes on the interest that is credited to their annuity.
  • Shorter Surrender Charge Periods: Newer annuities not only have shorter surrender charge periods (such as three, five or seven years, instead of 10), but also now often have similar interest, cap and participation rates as the longer products. The flexibility of surrender charge periods has given rise to issue age flexibility — many clients in their 80s and even 90s can now buy an annuity.

For clients who are becoming uncomfortable risking their money in the stock market, annuities provide a stable solution.

Annuities lock in growth without constant monitoring. Annuities offer a simple and safe option that doesn’t require constant upkeep. They guard against the psychological shock of market dips and having to watch a nest egg evaporate with every market move. The end result: annuities are simply one of the best ways for baby boomers to strengthen a portfolio that needs protection and stability.

— Read 3 Ways Fixed Annuities Can Outperform Bond Mutual Fundson ThinkAdvisor.


Chris Conklin

Chris Conklin is vice president of individual annuities at The Standard. He is a Fellow of the Society of Actuaries and a licensed agent. He also co-owned a national marketing organization.