How to Sell Fixed Annuities to Skeptical Retirees

More often than not, fixed annuities make a lot of sense as a financial tool for retirees.

However, they are frequently encumbered by a bad rap that causes skepticism among potential investors.

(Related: Wake Up, Dave Ramsey: Your Math Is Flawed)

How do agents overcome this resistance and create a win-win situation for all involved? The way I see it, it’s best to anticipate these skeptical comments and provide reasonable and reassuring responses.

Seeking Safety

One of the more prevalent resistive remarks is, “I’ve heard annuities aren’t safe because they’re not FDIC-insured.” Some helpful talking points in response would include:

• Although it’s true the Federal Deposit Insurance Corp. (FDIC) doesn’t insure annuities, this is essentially comparing apples to oranges. The FDIC is a federal agency whose jurisdiction only extends to bank products. On the other hand, annuities are regulated by state laws, which require insurance companies to protect outstanding contracts with cash reserves on a dollar-for-dollar basis. It’s important to emphasize that the level of protection is the same and the way it’s provided just happens to be different.
• Reputable agencies like A.M. Best, Moody’s and Standard & Poor’s rate all insurance companies on comprehensive criteria, including their ability to pay claims. Agents should explain this review system and, if applicable, emphasize their firm only partners with insurance companies that have an “A” rating or better.

Finding the Right Fit

Another common skeptical comment from retirees is, “I don’t think an annuity would be the right fit for me.” Again, education is key in helping potential investors overcome this resistance:

1. Explain that experts agree the concept of diversification should drive investment decisions. Fixed annuities are among the safest components of a diversified portfolio due to features like guaranteed return of principal (offered on some annuities), tax deferral on gains (vs. certificates of deposit), access to funds, payment options (including payments for life) and the elimination of probate for benefits. Even bonds tend to be more volatile and subject to the whims of the market than fixed annuities.
2. Under state insurance law, a fixed annuity provides the investor with a competitive fixed-interest rate for a select period of time and a guaranteed minimum rate of interest, stated in the investor’s contract. Agents should emphasize that fixed annuities usually provide a larger rate of return than CDs and high-yield savings accounts due to the tax deferral on gains, enabling an investor’s money to grow faster.
3. Annuities are a good fit for retirees who want a guaranteed return with little risk, and the most popular fixed annuity right now is a five-year rate. Since penalties can apply for early withdrawals, the ideal investors won’t need that money for five years but seek a secure rate they can count on afterward.

Media Misconceptions

Many misconceptions about annuities stem from media coverage and advertising campaigns. For example, some articles stress how investors must be aware of the potential fees and surrender charges, which may scare off retirees who don’t understand how those expenses can be triggered.