For some clients, an annuity is an effective tool to create an income in retirement. But there's a lot of confusion about annuities — not to mention the negative perception they can have.
You should expect clients to have questions. To prepare, consider this list of common questions about annuities. You can use it as a guide to help them learn more.
A good place to start with your clients is covering the basics. It may help to start by clearing up some common myths about annuities.
Explain that annuities are long-term investments that are designed to help ensure customers have an income well into retirement and later life. An annuity allows a customer's lump sum or premium payment(s) to become a future stream of income for that customer.
It could be a good fit for someone who wants guaranteed retirement income and has the financial means and discipline to fund one properly. Help clients understand how an annuity could fit into their overall retirement strategy.
With some of the basics out of the way, break down two main types of annuities — fixed and variable — and how each works. Explain how the names refer to how returns are generated.
Another factor to go over is income payments. Explain that, depending on the type of annuity, they could choose to begin receiving payments right away or years down the road. Having a glossary of key terms may help, especially when breaking down the difference between immediate and deferred annuities.
Your client's confusion will probably come from a lack of education on how annuities work. It may help to start by explaining the two phases of annuities and when payouts can begin depending on what type of annuity they choose.
Also be sure they fully understand the mechanisms for growth and the associated risks. As your clients have different risk profiles, one type of annuity over another could be a better fit. They'll want to weigh the risks versus rewards as they consider their options.
Highlight some key differences. Such as how fixed annuities tend to have lower risk, fixed rates and guaranteed income. While in contrast, variable annuities have higher growth potential, also come with greater risk.
As you know, every retirement vehicle has pros and cons. Go over these with your clients so they have a complete picture of the potential advantages and disadvantages of annuities, especially compared to other types of retirement tools.
It may help to create a simple document that lays out each type of annuity with a bullet-point list of the potential benefits and drawbacks of each. For example, list some benefits of variable annuities, including multiple funding and investment options and opportunities for tax-deferred growth. Then, go through each point with your clients and answer any additional questions they have.
Your clients may want to know how quickly they can begin drawing an income from an annuity. The answer will depend on the annuity they choose. Make sure to explain what a surrender charge is and that any withdrawals made before age 59 1/2 are subject to a tax penalty.
Another consideration for your clients will be taxes. You've probably already helped them create a tax strategy as part of their retirement strategy. Show them how annuities may fit into their plans.
Explain that annuities offer tax-deferred growth and then will be taxed at withdrawal. Make it clear that there could be penalties for any early withdrawals.
It's reasonable for your clients to want to know if there are fees associated with annuities and what they may expect to pay. Let them know that fees will vary based on the type of annuity and the insurance company, and there are low and no-fee annuities available. If there are fees, let them know how those fee structures work.
This list should help you prepare for some common questions about annuities. Having relevant knowledge can help your clients feel more confident about an often confusing retirement tool and further establish you as a trusted financial partner.
Protective refers to Protective Life Insurance Company, founded in 1907, and its affiliated companies, including Protective Life and Annuity Insurance Company.
Protective® is a registered trademark of Protective Life Insurance Company. The Protective trademarks, logos, and service marks are property of Protective Life Insurance Company and are protected by trademark and/or other proprietary rights and laws.
Life insurance and annuity products are issued by Protective Life Insurance Company, Omaha, NE, in all states except New York, where products are issued by Protective Life and Annuity Insurance Company, Birmingham, AL. Protective Life Insurance Company does not solicit business in the state of New York, nor is it authorized to do so. Variable products are distributed by affiliated broker-dealer Investment Distributors, Inc., Birmingham, AL.
Guarantees are subject to the financial strength and claims-paying ability of the issuing insurance company. Product features, availability, and issuing companies may vary by jurisdiction.
Information provided on this website is for general informational and educational purposes only and is not intended as investment, tax, or legal advice, nor should it be considered as a recommendation, endorsement, or solicitation with respect to any product or strategy. Individuals should consult their own qualified advisors regarding their specific situation.
When you visit Protective's websites, we may collect personal information from you via your browser or device, or through the use of cookies, analytics tools, and other technologies. You can exercise your privacy choices by completing a “Do not sell my personal information” request or a “Limit the use of my sensitive personal information” request. Please visit our Privacy Policy for more information about our information practices, including information about your privacy choices.
Investment and Insurance products are: NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, A BANK OR CREDIT UNION | MAY GO DOWN IN VALUE | NOT FDIC/NCUA INSURED | NOT INSURED BY ANY FEDERAL AGENCY | NOT GUARANTEED BY ANY BANK OR SAVINGS ASSOCIATION
