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Annuities were once a staple offering for many registered investment advisors. For a few years, these products took a back seat to other retirement strategies, but they’re making a comeback.
As advisors know, annuities are products that offer guaranteed lifetime income for clients. Alone that’s appealing, but amid rising interest rates, annuities’ payouts are as high today as they’ve been in years, representing another potential perk for clients.
Advisors that have ignored annuities for a few years and those that aren’t well versed in these products should consider boning up because a recent study by Allianz Life Insurance Company of North America (Allianz Life) confirms that more workers would like to see annuities offered in their employer-sponsored retirement plans, including 401(k) offerings.
In addition to lifetime income, annuities can offer guaranteed interest rates as well tax-deferred growth – the former being pertinent at a time when more Federal Reserve rate hikes appear unlikely. As for tax- deferred growth, that has benefits to a broad swath of clients.
Advisors Need to Be Annuity Ready
Now is the ideal time for advisors to bolster annuities knowledge and offerings because, as confirmed by the Allianz Life survey, more clients want access to these products.
“In the last few years, interest in annuities as part of an employer-sponsored retirement plan has grown significantly,” according to Allianz. “The study found that nearly seven in 10 (68%) would like more information about annuities as part of their plan. This is up from 62% in 2022 and 56% in 2021. At the same time, 67% say they would consider adding an annuity to their plan if it was available, up from 60% in 2022 and 59% in 2021.”
Advisors should also note that employees with access to defined contribution retirement plans could well be interested in annuities. However, it’s not a guarantee that those plans will offer annuities or give clients adequate choice. Advisors can fill that void.
“More than three in four (77%) say having an option that allows them to build a protected foundation for lifetime income would increase loyalty to their employer, up from 74% in 2022 and 65% in 2021,” adds Allianz. “The majority of Americans (72%) say that they expect most of their retirement income will come from money in their employer-sponsored plans. At the same time, 66% worry they will run out of money from their plan during retirement.”
How to Articulate Annuity Differences to Clients
Advisors know the following, but many clients may not: There are important differences between fixed and indexed annuities. The former may be appropriate for some clients while the latter may be more useful to others.
“Like a fixed annuity, with an indexed annuity, your principal is protected. But the difference is that the annuity is linked to a market index. You’re not actually invested in the market,” notes the Alliance for Lifetime Income. “The market index you choose acts like a kind of measuring tool. If the market index is positive, you get earnings that are potentially higher than could be earned in a fixed annuity.”
The Point: Annuities are stylish again and in demand. That’s good news for advisors.