Annuities can be an important piece of your clients’ retirement puzzle. Terms like “tax-deferred” and “low-risk” should be music to the ears of anyone looking for the savings vehicle that will carry them into and through their golden years. But with numerous options available, annuities can become complex. Advisors need to have a clear understanding of their clients’ situation when drafting a retirement plan involving an annuity.
This also means the client needs a clear understanding of how annuities work. While some prospects and clients may be familiar, you should expect that most people will come in knowing little about, or carrying one or more misconceptions about, annuities. It is the latter that will almost always bring objections to overcome.
Below are a few examples of annuity misconceptions/objections you might hear from clients, with tips on how to respond.
Exposure to Market Volatility
This is an easy one. Fixed Indexed Annuities are low-risk savings vehicles. While cash value does accumulate based on the performance of a specific stock market index (S&P 500, Dow Jones), the fixed indexed annuity has no direct exposure to the market. Use recent market volatility due to the coronavirus pandemic or the 2008 crash to highlight this point. When the market tanked, countless retirement accounts went down with it. However, those with fixed annuities came out with their principal investments relatively unscathed. This level of protection should be especially attractive to those who are close to, or at, retirement age and do not have the luxury of waiting for a fluctuating market to recover.
High Management and Contract Fees
Management fees can chip away at the annuity’s cash value. But the same is also true with IRAs and 401(k) plans. Explain that some of those fees can go toward extra layers of protection, such as a Lifetime Income Benefit Rider, or additional options. It’s important the client understands fees associated with an annuity before making a final decision and realizes that any savings vehicle they use will come at an expense.
No Access to Funds If / When Needed
The ability to access funds in an emergency is a concern for many would-be annuity buyers. While other products may allow low or no penalty access to funds, annuities do allow for early withdrawals. The penalties involved largely depend on the type of annuity, the annuity owner’s age, and the length of time they’ve had the annuity. When discussing these details, stress that annuities are most effective when left alone to be used as a steady stream of retirement income and are not designed to be liquidated pre-maturity. If this is still a concern, recommend a strategy that includes cash value life insurance.
Lower Payout / Income Stream in Retirement
Several variables determine what the annuity will pay out each month, and the amount will likely be lower than monthly payments from a pension or 401(k). The key takeaway here is that the client will receive guaranteed, regular payments in retirement. Present this as a classic “risk vs. reward” scenario. One solution might offer higher monthly payments but could leave the client at risk of outliving that income. An annuity that includes a Lifetime Benefit Rider will eliminate that risk and provide a lifetime stream of cash. Some annuities now allow the retiree to pass on any unused balance to a beneficiary upon death. This is also a good time to present solutions that combine an annuity with life insurance, pension, and/or Social Security benefits.
Additional Objections
These are just a handful of objections and misconceptions you’ll encounter when discussing annuity-based retirement plans. Annuities are complex financial products that come with multiple variables and options; hesitation and scrutiny are to be expected. The best way to overcome these barriers is to educate the client to the best of your ability. Keep in mind that this is a lot of information for someone to take in during an hour-long appointment. Sending them home with materials they can read through might be the key to conversion here.
Our consumer-facing Annuity Basics guide is the perfect resource to help with client objections and misconceptions. Created with your clients and prospects in mind, Annuity Basics gives a comprehensive and easy-to-read overview of the role annuities play in a financially secure retirement plan. Share these downloadable materials with clients to give them the knowledge and confidence to have a productive conversation about annuities.
The guide comes as part of the IAMS 2022 Annuity Awareness Month Sales Kit. This valuable kit also includes:
- Annuity Slide presentation
- Shareable social posts
- 2022 Taxable Equivalent Yield Table
- Consumer-facing annuity concept pages
- Letter and email templates and more!
