Changing the Perception of Fixed Annuities

Mike Gann | July 22, 2015 | Fixed Annuities, Index Annuities

Why do annuities that can have twice the rate of return or a bank CD or money market receive such negative press? Sadly, there are multiple reasons for this ridiculous reality.

For decades, employees retiring with pension plans have had to choose their annuity pension pay-out options available to them. In many cases, the retiring employee chooses the highest monthly income option, which is a life only option. As a result, if the now retired employee passes away earlier than the mortality table average, then the family will think the annuity took all their money.

Sadly, in the past, clients have purchased variable and fixed annuities that they did not fully understand. This lack of understanding caused a mismatch that meant the annuity did not fit the client’s needs. These poorly matched annuities led people to shy away from annuities because they could not see the benefit.

Could all this negative clatter be to blame when we meet a senior client express doubts about fixed annuities or is something else at work, like change? A client clearly states that their number one worry or fear going forward is the volatility and risks of their brokerage account. However, when we suggest transitioning into a more stable annuity environment, this solution seems foreign to them. Many prospective clients freeze up. The thought of change is seldom easy for anyone. As advisors, we need to recognize that the actual process of change might be an overwhelming reason for a client’s concern. We need to illustrate how the change to fixed annuities can actually benefit the client and remove the fear surrounding the product.

Familiarity of a product influences our daily decisions. For example, I have known for several years that I should go ahead and acquire my Series 65; yet, I am just now moving through that process. My procrastination stems from my unfamiliarity with the Series 65 test. It is easier to avoid the process than proactively take action, even though I know I can accomplish more with a Series 65.

It is human nature that most people transition want stability as they age. As a result, they move their nest egg towards less volatile investments. Why then do retirees find it hard-pressed to take comfort and value in fixed annuities? I believe as advisors we need to help people understand and recognize the value of fixed annuities.

At Advantage Retirement Services, we use fixed annuities to help solve our clients’ retirement concerns. We understand that if our client is retired and receiving Social Security, and their income is more than $44 thousand per year, then in many cases, they fall into one of the highest marginal tax brackets. As a result, they might need a fixed annuity to help reduce taxation.

As advisors, the obstacles we face in our attempt to genuinely help solve real issues for senior clients are immense. We battle against perception and the inherent fear of change, along with numerous other issues preventing clients from investing in fixed annuities.

In many cases, senior clients are not aware of the protection, admirable rates of return, and the added peace of mind that should be expected during the golden years of retirement.

It is my goal to become more masterful in identifying these realities for our prospective clients.

If implemented as part of a retirement plan, fixed annuities are truly a golden child of the financial world and a blessing for many senior clients.

 

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