The key takeaway from Genworth's recently released study, The Future of Retirement Income Study, can be summed up by the concept of perception versus reality: Consumers perceive annuities more positively than financial professionals give them credit for.
The study was the culmination of in-depth interviews, focus groups and quantitative surveys of 400 financial professionals and 1,340 retirees and pre-retirees, including those that owned and did not own annuities.
At a time when creating a reliable income stream is more challenging than ever before, the study found that perceived consumer objections to annuities could be hindering producers' ability to help clients reach retirement income goals.
Therefore, I've re-created a typical conversation I might have with financial professionals who have previously shied away from presenting annuities as an option to their clients.
Can I present annuities as a solution to clients seeking a reliable retirement income stream?
Absolutely. An annuity can guarantee a contract holder an income stream for life. Recent sales figures of indexed annuities confirm just how much consumers are seeking security. Total sales of indexed annuities hit $9.2 billion in the second quarter. That is a 17 percent jump compared with the previous quarter and a 5.5 percent year-over-year increase from Q2 20121. When adding an optional guaranteed lifetime income rider, consumers can obtain the confidence that they will receive income, without losing control of their contract value, for as long as they live.
Despite all this, however, Genworth's The Future of Retirement Income Study shows that many financial professionals overlook this data due to their own misperceptions about the product's appeal to their client base.
Annuities often get a bad rap and I'm worried about losing credibility if I were to present them to a client. How do I work around this?
Consumers actually view annuities more positively than some media headlines might imply. In fact, according to the study, the vast majority of annuity owners, 91 percent, have a positive or neutral impression of the product.2
Despite this enthusiastic response, many producers appear to be losing out on business. In fact, the survey found that 40 percent of consumers who do not own an annuity are likely to consider purchasing one, but have never been presented with the opportunity by a financial professional.3
Among clients that don't currently own annuities, what are the most common objections I should be prepared to address?
The survey found that the most common objections about annuities among those who do not currently own the product are liquidity, growth and expenses. However, the survey also found that those who own annuities feel very differently about these issues.
Help me overcome each of these objections one-by-one. Are my clients' concerns about liquidity justified? Or is there a better way to approach this topic with them?
Approximately half of those who do not own annuities object to them because of concerns regarding liquidity. However, 78 percent of those who own annuities are satisfied with the level of access to their funds.
Furthermore, while most annuities have surrender charge periods, and some have a Market Value Adjustment, generally between five and 10 years, many contracts offer up to 10 percent in surrender penalty-free withdrawals of contract value each year. Additionally, many contracts have further provisions for expanded surrender penalty-free access if necessary due to medical needs, such as confinement due to long-term care. In addition, it is important that clients understand that a federal 10 percent early withdrawal penalty tax will generally apply to any taxable amounts withdrawn from either a non-qualified deferred annuity or an Individual Retirement Annuity (IRA) prior to the contract holder attaining age 59-and-a-half, becoming disabled, or otherwise meeting an exception to this penalty.
Many clients are enamored by the strong growth in the stock market, which makes them overlook other vehicles like annuities. Can I realistically present an annuity to them as a better alternative?
More than half of consumers surveyed said they would rather invest directly in the market than purchase an annuity.4 That is concerning if pre-retirees have not taken into account the impact a market downturn could have on their retirement portfolio. As the events of the past 13 years have shown, for those nearing or in retirement, too much exposure to volatile markets can be devastating to their retirement portfolio's ability to generate sufficient income for life.
