Are Fixed Annuity Sales Down?
February 15, 2011 by Laura Hahn
Are Fixed Annuity Sales Down?
Perhaps A Change Of Approace Is Needed!
Laura Hahn
February 2011 Issue
How many times have you asked your general agent or home office marketing rep about fixed annuities? Do you call them, asking for the best rate available? If so, I suspect you have heard this response more than once lately: “That’s the best rate we have.” Sound familiar? Read on…
We can all agree that the interest rate environment today isn’t what any of us had come to expect, nor can anyone know with 100 percent certainty how long it will remain or if it will ever be back to how we once knew it. Does that mean annuity products no longer offer benefits to the consumer and they should be displayed in the “Products of Yesteryear Museum?”
The answer may be “yes” if rates were the only benefit to a fixed annuity and the only reason to buy one. The fact is, as we all know, that is not what an annuity is all about. Yes, we know it, but I suspect many brokers may have forgotten it.
It’s easy to forget when rates are attractive. We need to remind brokers of a fixed annuity’s true value and help them change their approach to selling these products.
We can start by making sure we promote the facts:
1. Fixed annuities are protection products. Many clients are looking for ways to protect a portion of their assets from fluctuations in the market.
2. Fixed annuities can guarantee income. Have you hear about the baby boomer generation? Me, too. Sure, they are looking for a way to guarantee income in retirement, but I suspect non-baby boomers may have had an awakening during the past financial crisis as well. What about generation X and younger boomers? Do you think they may be concerned about what options they have to replace dwindling employer-sponsored pension plans or Social Security benefits? I don’t think any of us would say that there is a feeling of much “security” in those benefits any longer.
3. Fixed annuities provide an opportunity for tax deferral. How important is that in a low interest rate environment? Do clients really want to pay taxes now in addition to receiving low interest rates on their CDs? After taxes, what are they really earning on that CD?
4. Fixed annuities can offer a percentage of free withdrawals on an annual basis. How important could that be if the client feels he could be at risk of being downsized and losing his job when the unemployment rate is high? Can he get free withdrawals from his CD if that happens?
5. Fixed annuities can allow for beneficiary payment upon death. CDs, as an example, can be subject to delay and costs of probate.
Let’s Explore These Five Facts in More Detail
In today’s environment, brokers need to be helping their clients diversify their risk now more than ever. Especially if those clients are in or reaching their retirement years. Fixed annuities by design are protection products. They do not participate in market losses. Fixed indexed annuities can even provide clients with the ability to participate in some of the market gains! Fixed annuity guarantees are based on the claims-paying ability of the issuing insurance company. Help your clients evaluate their financial landscape. Do they need or want to have a portion of their overall assets protected from loss of principal?
Are you asking your clients:” If I can show you a way to guarantee yourself an income for as long as you live, would you be interested in learning more?” If they trust you and have a strong relationship with you, of course they would! Okay, maybe one or two would just not want to be bothered.
The statistics don’t lie. Americans are living longer and hoping to retire younger. Employer pension plans continue to decline, and we have all read or heard about the predictions on what is going to happen to Social Security benefits in the (not so distant, perhaps) future.
Educate your clients on the optional lifetime income riders that are available today and can be added to a fixed indexed deferred annuity. These riders can offer a guarantee that clients can withdraw a minimum amount of income from their annuity each year for as long as they live. These withdrawals are in addition to any free withdrawal provisions within the contract. These riders can offer guaranteed growth of the account value during the accumulation period and guaranteed payout percentages during the withdrawal period.
Here is an example of how this rider can make an impact:
A $100,000 fixed indexed annuity with an optional lifetime income rider that offers a 7.2 percent guaranteed interest rate for the first seven contract years during the accumulation phase would:
• Have an income account value of $107,200 in the first accumulation/deferral contract year.
• Continue to go up each year.
• Reach $162,691 in income account value in the seventh year. (Assumes no withdrawals of any kind and no restart of the accumulation period.)
• Allow lifetime payments to begin at the end of the seven year accumulation period. The payment amount is based on a percentage ratio at the age payments are elected and vary by carrier. For this example, let’s assume a payout ratio of 5 percent at age 62 for a single annuitant.
• Pay $8,134.55 annually for life after only a seven year accumulation period.
Think about that for a minute. Realistically, a 62-year-old individual could live well into his nineties. Do the math!
Do you have clients who would prefer to defer taxes on their current assets until retirement when they are typically in a lower tax bracket? Just one more reason to talk with them about the opportunities a fixed annuity can offer.
One concern about purchasing an annuity you may hear from your clients is that they do not want to tie up their money and not be able to access it for emergencies. After all, if they have not been impacted by company downsizing, layoffs, etc., personally, then they probably have at lest one family member or personal friend who has. The fact is that a fixed annuity provides more flexibility in accessing a portion of the funds annually without penalties than the CD they probably have (which may be coming up for renewal soon). Most fixed annuities offer up to 10 percent or some other predefined amount of cash value to be withdrawn each year without surrender charges.
Another objection you may hear when offering options to clients is that they don’t want to put money into an annuity and lose the ability to transfer those assets to their beneficiaries at death. It is important that you know that annuities can offer options upon death for clients to leave a legacy to their heirs as well.
Interesting, isn’t it? Just five simple facts about the benefits of a fixed annuity and why someone would want to buy one, and not one of them had anything to do with the best rate available. The reality is a fixed annuity should never be sold solely on rates. Certificates of deposit, perhaps, but as we just explored, a fixed annuity is not a CD, is it? Now don’t misunderstand me—I am not anti-CD. They have their place just like a fixed annuity or any other product. My concern is that we have too many consumers who do not explore or understand all of the retirement planning options available to them today. You need to remind your clients of this and they need you to “bring them out of the forest so they can see the trees.”
Yes, the economy has been better and the financial crisis is still impacting the lives of many, but is that really keeping your clients from buying an annuity? Some would say “yes,” I am sure. I say, however, they just need someone to show them the benefits an annuity can offer!
Author’s Bio
Laura Hahn
Hahn is managing director of the annuity center for The Marketing Alliance, a national network of independent brokerage general agents. Hahn is responsible for all aspects of the company’s annuity business, including sales and service. Hahn can be reached at The Marketing Alliance, 111 Westport Plaza, St. Louis, MO 63146. Telephone: 314-275-8713. Email: lhahn@themarketingalliance.com
