Financing retirement through annuities is the only way to guarantee income that will last through your lifetime. If they are so beneficial, why aren’t they more popular? Mary Beth Franklin of Investment News says that the simplest of annuity products, immediate annuities, may benefit from a name change. In her article, “Annuities suffer from a branding problem,” Franklin says that it is not only consumers who have an issue with the word annuity, but sometimes it is advisors too. Simple annuity contracts compared with their distant deferred cousins that are investments don’t really have that much in common. While investment annuities are right for some people, basic annuities can offer great benefits to most people.
The biggest concerns about annuities include a loss of control over one’s money and the worry that their money will go straight to the insurance company if they die right away. Not only do annuities give you peace of mind to live out your lifetime without the fear of outliving your money, they also keep you disciplined from overspending with their monthly payouts. Older workers and retirees responded to an AARP study saying that there is more potential in the annuity market than most people see. We also recently talked about how Cerulli Associates found in a study that annuities are the number one thing people want to speak with their financial advisors about. Hopefully their financial advisors are up to date with the latest annuity information and benefits.
Immediate annuity rates are certainly not high right now, but that doesn’t meant that they are not a good product in which to put your money. The author doesn’t think that the rates are the problem when it comes to why people aren’t buying more annuities. She believes that it lies in branding and even suggests renaming simple annuities as something like a private pension, lifetime income, or lifetime paycheck. How advisors approach the topic of annuities is often another problem. If you look at an annuity as an investment product only, half of the people will die before receiving all of their money back while half will get more than they put in. The first half of the group isn’t going to think annuities look too good unless they realize that a payout annuity isn’t really an investment. It is a guarantee that you will receive income as long as you live that you are actually paying for.
It’s very important for advisors to make sure they are making decisions in the best interest of their clients and not themselves. They may lose some of their fee for assets-under-management if a portion of their client’s investments goes to an annuity, but that should be the decision if it’s in the client’s best interest. Before securing annuity investments though, the author recommends maxing out client’s social security benefits first. By timing social security right and knowing how to claim the benefits, a married couple could actually get $100,000 more in benefits over their lifetime. Pairing social security with annuity payments can help retirees meet living expenses and not worry about their finances in retirement.
Written by Rachel Summit
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