Why All Your Clients Need an Annuity
Why All of Your Clients Need an Annuity
By Tom Hegna, CLU, ChFC, CASL, NAIFA-Iowa State Convention Keynote Speaker
Annuities historically have been one of the most misunderstood and unfairly maligned financial products. Some people love them, while others hate them. Some think they are the most valuable product you can invest in, while others insist the high fees are a complete rip off. I am here to tell you that annuities are incredible products – they do things that no other financial tool can do – and that every single one of your clients should consider adding them at some point in their lives.
The first battle every advisor is going to face surrounding annuities is client confusion. There are so many types of annuities, how the heck are they supposed to pick the right one? Immediate, deferred, fixed, or variable… there are just so many choices. In addition, there is an alphabet soup of available riders. Then there are all of the conflicting opinions in the financial media. Your job is to help your clients select the one that best fits their needs. You are the advisor – make sure you are providing your expertise to help your clients make the right decision. Show them that annuities can provide a secure way for them to save for retirement and generate retirement income.
As a retirement savings vehicle, one of my personal favorites is the variable annuity, and I am in good company. Ben Bernanke, the Chairman of the Federal Reserve, has most of his money invested in variable annuities. Ben Stein, who you probably see often on the Fox Business Network, is a believer in these products as well. Variable annuities give your clients investment insurance. They can invest in the market on a tax-deferred basis with no limits or caps on how much their funds can go up. By adding a Guaranteed Minimum Accumulation Benefit Rider, your clients can put a floor under their investments so they do not lose a penny. With Guaranteed Minimum Withdrawal Benefit Riders, they can receive roll ups to the benefit base as well as investment gain lock in with a lifetime income guarantee.
The other piece of the puzzle is how to generate income in retirement for your clients in a way that provides peace of mind and is capable of replacing the all but extinct company pension. Here is where you can offer the lifetime income annuity or SPIA. Just as the variable annuity acts as investment insurance, the lifetime income annuity gives clients income insurance. For a lump-sum upfront investment, it provides them with a guaranteed paycheck for life. Clients can best relate its payouts to how Social Security or traditional pensions work.
Why should your clients be interested in adding a SPIA to their portfolio? There are a number of risks to retirement savings, including market volatility, inflation risk, and deflation risk. However, the number one risk to retirement is longevity risk. Why? Because it is a risk multiplier! The longer a person lives, the longer they are at risk from all the other risks! By providing guaranteed income for life, a lifetime income annuity takes longevity risk off the table and provides peace of mind. No other financial product is optimized to provide your clients with lifetime income.
So now that your clients are starting to understand these amazing products, they are thinking “What’s the catch?” The first objection, of course, is going to be the fees. Let them know the deal: both banks and mutual funds have fees too. Yes, annuities typically have higher fees but, for one, at least you know what they are and, two, for a relatively small upfront fee, you get guarantees. The SPIA will provide a guaranteed income for life. The variable annuity with a Guaranteed Minimum Accumulation Benefit Rider will guarantee that your client does not lose money on their investment. The Guaranteed Minimum Withdrawal Benefit Rider gives them income guarantees no matter what the market does. Ask them to try getting the same guarantees from a stock broker!
The second objection you may get is that the investment is too complex. It is up to you to simplify. Do your homework and understand the products you are recommending. Make sure that when you are discussing all these different options and riders, you always relate the benefit back to the client. Understand that the words you use matter! Many of the phrases you see in this article work (I have used them successfully for many years). Beyond that, I would recommend reading my book, Paychecks and Playchecks: Retirement Solutions for Life, and sharing some copies with your clients as well. It shows how insurance products – with a big focus on annuities – were built to provide a successful retirement in times like these, and it presents the facts in a way that is simple and relatable.
So remember, annuities do things that no other financial tool can do. You can eliminate longevity risk for your clients and provide guaranteed income for life. You can insure their investments and capture the upside of the market without experiencing the downside. Learn everything you can about these products and work with your clients to help them understand how important they can be. Chances are they already have insurance for their cars and homes, why wouldn’t they want it for their investments and retirement income?
Tom Hegna CLU, ChFC, CASL is a retirement expert, speaker, and author of the bestselling book, Paychecks and Playchecks: Retirement Solutions for Life. As a former First Vice President for New York Life, he boasts a record of over 2,000 top-rated seminars on retirement. Tom’s words have literally had a multi-billion dollar impact on the industry. To book Tom as a speaker or learn more, visit www.TomHegna.com.