REPRINT: DON’T ASSUME PROSPECTS KNOW ANNUITIES, #AnnuityAwarenessMonth
June 24, 2020 by Sheryl J. Moore
DON’T ASSUME PROSPECTS KNOW ANNUITIES
April 21, 2013 by Sheryl J. Moore
I was speaking to a health insurance agent today who was looking for information on life insurance and annuities. He was genuinely interested in selling these “foreign” products, and I did my best to provide him with an overview. The life insurance basics went by like a breeze, but when I dove into the topic of annuities, he asked, “Whoa! What IS an annuity?” How ignorant of me to assume…
“An annuity is the only product that can guarantee you an income you will never outlive.” I was pleased to point out the value proposition of the retirement income product.
“What does that mean though? And why do people want annuities?” he asked. Good questions for even the most seasoned professional to ponder. Before I answered him, I offered some statistics:
- In 1950, there were only 2,300 Americans age 100+; today, there are 53,000.1
- The world’s oldest person (and a neighbor of mine), Dina Manfredini, recently died at the age of 115.2
- The typical American family’s health care costs exceed $20,000 annually today3 and are projected to increase by 7%-8% annually.
- The average American’s retirement nest egg dropped by 60% in March of 2009;4 today, only 50% of households will be ready to retire at age 65.5
- Social Security is only intended to provide 40% of one’s funds at retirement; the average American aged 65 to 75 has only $56,212 in retirement savings.6
- The Social Security Administration is exploring an extension of “full retirement age” to age 70 or 80.
So, the long and short of it is that we are living longer, spending more, losing more, saving less, and we’re going to work until we breathe our last breath. Sounds like we need help with that!
I went on to explain that we can offset most of these risks with annuities. To make things a little simpler, I clarified that an annuity is nothing more than a contract where an individual agrees to pay premiums to an insurance company and receives, in exchange, a regular stream of income payments from the insurer either now or at some time in the future. Even if the money that the person pays to the insurance company is exhausted through those payments, that person will still keep receiving a “paycheck for life.” What a deal!
Conceptually, one might say that where life insurance guards against the risk of dying too early, annuities guard against the risk of living too long.
Now, just how do your clients get that income?
There are so very many ways! Methods of receiving income from an annuity include:
- Required Minimum Distributions (RMDs).
- Annual penalty-free withdrawals of the cash values.
- Annuitization of the contract.
- Exercising penalty-free withdrawals in the event of nursing home confinement, disability, terminal illness, unemployment, and more.
- Regular payments via a Guaranteed Lifetime Withdrawal Benefit feature.
- Death (I’d advise using this method as a last resort).
There has never been a better time to discuss how annuities can be used to address the top fear of Americans: outliving their retirements.