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Four Ways to Ace Your Next Annuity Sale

In today’s world of volatile markets and long lifespans, annuities are powerful tools that can help clients create a more secure retirement. However, perhaps more than any other financial product, annuities are also incredibly misunderstood by the public. 

While you may be excited about the features of a particular annuity, the mere mention of the word “annuity” can send clients running for the door if the proper context isn’t established first. That is why great advisors know they must bring their clients along emotionally by asking the right questions, defining personal and financial goals, and designing a plan that will infuse their clients with confidence that those goals will be reached.

Annuities can play an important role in your plan, but it’s your understanding of these products and how you position them that will allow you to make the sale. With this in mind, here are four ways to help increase your annuity production.


1] Take an Agnostic Approach

I believe the No. 1 goal of today’s best advisors is to create the best possible plan based on their clients’ needs. It’s your job to continually test your assumptions and different retirement strategies. Clients can intuitively sense when an advisor is product neutral. This agnostic approach breeds trust and makes the sale natural. Although this always has been a good practice, in the post-fiduciary rule world that is rapidly approaching, it will become the standard.


2] Become an Authority

You also should be knowledgeable. With easier access to information than ever before, there’s no excuse for being uninformed. Publications such as InsuranceNewsNet and Advisor Today are powerful resources to help you stay current on the latest trends.


3] Buy Income and Invest the Difference

While most people have heard the expression “buy term and invest the difference,” this presents an interesting twist for income annuities. One objection advisors often encounter is that clients don’t want to give up control of their money by purchasing an annuity. However, the reality of the matter couldn’t be further from the truth.

If a retiree needs $30,000 in annual income from a $1 million portfolio at 3 percent interest, how much of that portfolio can be used for other purposes? The answer, none of it. The entire portfolio is held hostage for its income-generating purpose.

An alternative approach is to “buy income and invest the difference.” Use a portion of the portfolio to secure guaranteed lifetime income with an annuity. This frees up the rest of the portfolio to potentially invest more aggressively, ride out the extremes of market volatility, leave a legacy, secure long-term care protection or achieve other financial goals.


4] Build a Bridge to Bigger Benefits

There are tremendous advantages for retirees who are able to maximize their Social Security benefits. Maximizing Social Security significantly reduces longevity risk, can generate powerful tax advantages, and can maximize the survivor benefit, which is critically important after the first spouse dies. The challenge, of course, is delaying retirement to age 70.

One strategy to make this easier is to bridge the eight-year gap by transferring some nonqualified money into a period certain annuity. This provides clients with a predetermined and level payout. However, there is also an underused tax advantage to this strategy.

Income from stocks, bonds or mutual funds is taxed as LIFO (last in/first out). Everything that clients gain from these investments would be subject to tax. However, income annuities use the tax-exclusion ratio. Typically, only 5 to 25 percent of the payouts are subject to tax, while 75 to 95 percent is considered a return of principal. We call this FIBO (first in/blend out) because the income is blended out as a combination of principal and income. The result is a larger portion of spendable income.

In an age of so much financial uncertainty, annuities are a powerful tool in the financial advisor’s arsenal. However, as the saying goes, with great power comes great responsibility. Consider how you can incorporate the ideas in this article into your practice. Use them in your clients’ best interest, and you’ll be sure to ace your next annuity sale. 

Curtis Cloke, CLTC, LUTCF, is an award-winning financial advisor and retirement income expert, trainer and speaker with over 25 years of experience in income distribution planning. Curtis may be contacted at [email protected] [email protected].

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