Dispelling Fixed Annuity Myths

Friday, May 30, 2014

Dispelling The Myth

By Rich Lane, Director, Sales and Marketing
Published in the May/June 2014 issue of
Advisor Today. Reprinted with permission from Advisor Today.

Brokers are poised to profoundly affect their clients' financial decisions. Many brokers may not know they can help their clients realize their investment goals by including the purchase of a fixed annuity.

Although many brokers think that fixed annuity sales aren't for their clients, or are complex to sell and administer, the opposite is actually true. Fixed annuities can help clients invest in their future and maintain peace of mind leading up to and after retirement. Consider the following four myths, and learn more to see if selling a fixed annuity is right for your client base.

Myth No. 1: Only retirees purchase fixed annuities.

Baby boomers beginning to reach retirement age are weighing the right time to transition out of the workforce and thinking about how to maintain their standard of living during retirement.

Fixed annuities are a practical option for baby boomers who don't want to take chances with their retirement money and are interested in a guaranteed stream of retirement income.

Myth No. 2: My clients don't want to purchase a fixed annuity when they can invest in the stock market.

Many investors are still apprehensive about aggressively investing. The 2008 market downturn created uncertainty about where and how to invest retirement dollars. People reaching retirement age learned that market volatility is not always their friend, and as such, developed a lower tolerance for risk. Baby boomers are living longer and need to rely on retirement income for a longer period of time – making this investment increasingly important.

Because of this aversion to risk, the fixed annuities marketplace is seeing strong sales growth. Brokers can sell a fixed annuity by focusing on the two aspects that purchasers want to ensure for their investments – protecting their money and funding them for the rest of their retirement years.

Myth No. 3: My clients want higher interest rates before they will consider purchasing a fixed annuity.

Even in today's low-interest-rate environment, a fixed annuity's compound growth and tax-deferral status can grow a purchaser's retirement savings faster than he or she may think possible. If a purchaser put $50,000 into a five-year guaranteed annuity paying 2 percent, he or she would be guaranteed $55,204 at the end of five years without early withdrawals.1

Waiting one year to invest $50,000 in a fixed annuity, the money would have to earn 2.51 percent annually for four years to catch up with the investor who purchased an annuity now. If a purchaser waits two years, it would take three years at 3.36 percent annually to achieve the same earnings.

Myth No. 4: It's too difficult to sell a fixed annuity with unique beneficiary situations.

Like life insurance death proceeds, annuity carriers typically distribute proceeds as a lump sum. However, there are times when an annuity purchaser wants to control how the proceeds from an annuity are disbursed. Perhaps there are multiple beneficiaries; a beneficiary isn't good at managing money; or the purchaser wants to know the beneficiaries will receive a guaranteed income stream for their lives or for a designated period of time.

Brokers can find an annuity carrier that offers a restrictive endorsement, which allows the owner of the annuity to determine how proceeds are disbursed. A restrictive endorsement gives the purchaser "control from the grave," taking the decision-making out of the hands of beneficiaries, who might not be ready for the responsibility, and into the hands of the purchaser.

Brokers can differentiate themselves by understanding the nuances of fixed annuities. Not only will a fixed annuity provide another option to help clients plan for retirement, it also will cement brokers' positions as trusted advisors.


1 The Standard internal data