Annuities for Seniors
I have a genuine question and hope to get some persepctive without any flame throwing.
Thus far in my business I have not ventured into the annuity business. I'm licensed etc. Here's the question:
Unless you/the client is interested in the living benefits (income for life/etc) why would you put anyone, over the age of 60 in an annuity?
It is VERY likely that I don't understand all of the benefits of an annuity, so please break it down if I'm missing something.
They seem like the perfect investment vehicle for someone under the age of 55, with the tax benefits and stepup on values.
With all the compliance BS associated with soliciting them to seniors, mixed with the surrender periods and fees, I don't see the value of offering them to seniors without a very attractive living benefit.
Can anyone shed light on what might be other reasons?
Perception is important. Seniors read more than any other group, and there is a lot of negative press about annuities. Why is there a lot of negative press? You have to decide where you stand, at least part of this is about your personality and who you are as an advisor.
You didn't specify which type of annuity. There are essentially 3 types- Fixed,Variable, and Immediate. You are licensed so I'm sure you know the difference between the 3.
For fixed, there are fixed annuities that have as short as 1 year surrender charge. If it's paying higher than his local bank, it can be a no brainer due to :
No 1099 until he cashes out = save income taxes, which may also reduce his magi so not as much social security is taxed,
He can name a beneficiary, thus bypassing the delay and cost of probate,
He can elect an income stream which he cannot outlive (Annuitizing, not recommended, unless income is used to pay premiums on , say a life policy or LTC plan.)
Banks insure accounts to $100,000, though I think they have raised or are raising them, and you can shelter an almost unlimited amount in an annuity.
Also consider their tax bracket, cause anything coming out of an annuity is taxed as ordinary income, unless it is annuitized. There is a bill in congress that would make the first $20,000 in income from an annuity tax free.
Some people have an objection to it not being FDIC insured, which I respond- Look, you insure your house, your health, your car, why not your life savings?
As for perception, I would argue how could anyone who's never met you and knows your situation like I do, say whether something is good, or bad, for you? Don't take someone Else's medicine, and certainly don't use a magazine or a TV show for a financial adviser.
Annuities aren't for everybody, but those are some reasons why they should be considered.
Annuities are insurance. Peace of mind. And you pay for it. You disclose it to the client. That is why people like them.
I have to agree with brainy on the peace of mind, Chris.
When you can guarantee income streams to retirees who want that, you're doing them a service.
Ask them if a guarantee's important to them. Literally, ask that question. "Is a guarantee important to you?" "because this product can guarantee your income/accumulation/both for life"....
Always make sure you understand the product THOROUGHLY, and you disclose everything to the client (surrender periods, how a benefit rider works if they elect it, etc.), Because they will have specific questions and you need to be able to answer most of them.
What works great for me is whiteboard illustrations to explain riders, spell out the different choices of the surrender periods and their corresponding M&E expense ratios, and the investment choices. That way, it's in black and white, in front of their face, and they feel comfortable with being able to make a choice then.
And if you really hate annuities, you won't be good at selling them. If you don't see the benefits, you won't be able to effectively convey them to your clients.
Recently, I have been using annuities more often for those who want guaranteed income for life. The trouble/benefit of annuities is they are changing every moment, when one carrier comes out with annutization without losing control (Lincoln and Genworth offer exclusion ratio payouts), others are coming out with unique living benefits and step ups.
How about this one...Transamerica has an enhanced income rider that pays double the income if the client (or spouse) goes into a skilled nursing facility. Benefits kick in after 6 months in the facility. Rumors are that soon Transamerica will include home care.
The carriers are getting smart. They know that boomers want guarantees especially if markets are crazy like they have been lately. The obvious fear for clients is outliving their money and drawing down in bad markets. Annuities are appropriate for seniors, now more than ever.
IN GENERAL I would disagree with the first post in this thread that annuities seem best for younger people. Fees really add up over time, and there is a big tax disadvantage to the next generation if the gain is not used up for income. Therefore older folks needing income is what they are for IN GENERAL I believe.
I was aware of that, in addition, you cannot 1035 these annuitized contracts without creating a tax bite for any growth that hasn't been paid out.
The lesson here, is read the contract before you present the concept.
too many options available to discuss adequately here. you need to talk to 2-3 different vendors and get some instruction, especially with LIVING BENEFITS now dominating the industry. the old annuity has gone to the wayside. many 3rd parties in the industry who were the staunchest anti-annuity people on the planet now think it is possible for annuities to be underpriced relative to their benefits. i also feel annuity companies have no idea exactly how all these living benefits (potential future obligations) will play out. more than anything, they offer a fall back which allows the investor to STAY invested when they otherwise may have made the mammoth mistake of sitting on the sidelines or selling in a down market.