It’s a new year, and many of your clients have just made resolutions to do a better job managing their money and saving for retirement. Now is a fantastic time to reach out and start a conversation about annuities.
We’ve talked before about how to frame a discussion about annuities. We’ve also talked about a new type of annuity that’s changing the game.
This time, we’re going to share six new reasons why annuities are having a moment. From better products to better advice about how to use them, here’s why you should make the time to talk about annuities in 2020.
No time to read? Watch our video overview:
Sales Idea #1: Annuities are a hedge against the need for long-term care.
We know, we know – clients don’t want to talk about long-term care. But it’s our job to protect their nest egg against possible long-term care costs. Luckily, annuities with LTC riders make a lot of sense in this situation.
For starters, annuities with LTC riders solve the problem of clients not being able to qualify for or afford traditional LTC policies. An annuity protects them against high LTC costs, and preserves their assets from drawdown during a down market (see idea #2 below).
So how do you turn this idea into a reality? Look at your client’s existing assets. First, figure out which ones are best left as accumulation vehicles. Next, select one or two assets that can be used to buy an annuity with an LTC rider. The rider protects your client’s accumulation assets from drawdown in case they need care, while the annuity itself will supplement their retirement income.
Sales Idea #2: Annuities make it more feasible to retire in a down market.
If you read Van Mueller’s monthly newsletter, you know he’s been predicting an economic crash. If you have clients who are within five years of retirement (before or after), they’re especially vulnerable to a downturn. A recent RetireOne study showed what happens to someone who retires with $100,000 in a down market, compared to someone who retires with the same amount in an up market. Both hypothetical investors earned an annual average return of 4%, with the same withdrawals taken at the same time.
The difference? After 15 years, the down-market retiree has $35,889, while the up-market retiree has $105,944. Yeah, the market cycle makes that big a difference.
Annuities make it possible to insure your client’s income stream against the effects of a down market. With an annuity providing guaranteed income, your client doesn't have to draw down principal as rapidly during subpar market conditions. For example, let’s say your client takes an underperforming asset (or a portion of their total assets) and buys a variable annuity with a guaranteed lifetime withdrawal benefit. As long as it has no surrender charges, your client gets guaranteed income without drawing down their primary asset(s) – and they can cancel at any time.
We see more people using annuities as an eight or nine year bridge to guarantee the non-discretionary income for the beginning years of retirement—to get clients to full Social Security benefits.
In a recent interview, Sri Reddy, Senior VP of Retirement and Income Solutions for Principal, said, “We see more people using annuities as an eight or nine year bridge to guarantee the non-discretionary income for the beginning years of retirement—to get clients to full Social Security benefits.”
Sales Idea #3: Annuities are just one part of a well-rounded plan for retirement.
If your clients shy away from the idea of an annuity, it might be because they’re thinking all their money would have to go into the annuity. No one is suggesting they convert all their assets into one or more annuities and use that as their sole source of retirement income.
In fact, as Sri Reddy noted in the article linked above, it’s a common misunderstanding that “annuitization is an all-or-nothing game…In fact, if someone is telling you to annuitize all your assets, find another adviser or provider. That’s not an outcome that anyone in our organization would promote.”
Want to talk about annuities with your client? Make sure you present them as one component of a larger plan. Your client doesn't have to give up their investments in order to get the guaranteed income and longevity protection of an annuity.
Sales Idea #4: Annuities are for savers, not investors.
Another part of annuities’ image problem? They’re not investments. They’re a savings vehicle meant to help clients protect against the risk of outliving their assets.
Annuity purchasers are people looking for peace of mind. They want to participate in gain without losing big.
According to Reddy, annuity “customers display very different behaviors versus what Wall Street or academics say is the optimal course for investors. Annuity purchasers are people looking for peace of mind. They want to participate in gain without losing big.”
To help them participate in that gain, look into buffer annuities. Because interest rates are so low, the gains on fixed and indexed annuities have been minimal. To sweeten the deal, buffer annuities offer more percentage points in yields. In return, they also offer the possibility of a buffered (reduced) loss if the market experiences a downturn.
Need another reason to look into buffer annuities? They’re still selling well, according to the LIMRA Secure Retirement Institute. In the third quarter of 2018, buffer annuity sales totaled $4.8 billion, up 17% from Q2 2018 and up 62% from Q3 of 2017. In 2019 so far, annuity sales are up 5.2% in Q2, according to the Insured Retirement Institute. The annuities with the fastest growth? Both are buffer annuities. Check out all these stats for yourself in this InvestmentNews.com article.
Sales Idea #5: Annuities don’t have to mean your client's money is locked up.
In the past, clients may have ignored annuities because they didn’t want their money to be locked up. What if they need cash and can’t get it in time? Or without paying a penalty to access it?
Annuities with zero surrender charges ease those worries. Yes, these typically pay low or no commissions. But what if that level-load annuity is in the client’s best interest? It's our job to tell them about that product. It's all part of earning that client's trust. And once you've done that, odds are you'll have won a client for life - one who may refer you to their friends and family.
Sales Idea #6: Annuities give clients more confidence during retirement.
Ask your clients this question: Would having a guaranteed income source make you feel more confident during retirement?
Retirees with guaranteed income from an annuity were more likely to feel confident about retirement and tolerate market volatility in other assets.
According to data from Wells Fargo and Prudential, retirees with guaranteed income from an annuity were more likely to feel confident about retirement and tolerate market volatility in their other assets. That confidence boost? It comes from having the same income level with a lower risk of outliving their assets. An investments-only strategy, by contrast, comes with greater risk of loss and less confidence as a result.
Looking for data to support this? The 2019 Wells Fargo Retirement Study found that 59% of workers and 44% of retirees say they’re worried about running out of money in retirement. A larger percentage (79%) said they’d buy insurance to solve this problem even if they didn’t have to use it.
That’s our look at six reasons to sell annuities in 2020!
How do you start the conversation about longevity with your clients? How do they respond? Tell us in the comments!
