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As Medicare agents, our clients are often looking for stability and security, especially when they are planning for retirement. Annuities are a powerful tool in our toolbox to help meet those needs. In this post, we’ll break down the annuities, explore the different types available, and offer insights on how to best position annuities for our clients. Hopefully, this will help with understanding the basics of annuities.

Annuities

An annuity is a contract between an individual and an insurance company, designed primarily to provide a steady stream of income, often during retirement. Clients pay either a lump sum or a series of payments, and in return, the insurance company provides scheduled payments either immediately or at a future date.

In addition to providing income, annuities offer tax-deferred income growth, which can be a significant selling point for clients who want to maximize their retirement savings.

Types of Annuities

Understanding the different types of annuities allows agents to tailor recommendations based on the individual goals of each client.

Fixed Annuities

Fixed annuities guarantee a specific rate of return and offer predictable payments. They are ideal for clients who prioritize stability and steady income without market risk.

Variable Annuities

Variable annuities allow clients to invest in various market-based options, like mutual funds. This product is suited for clients willing to accept more risk for the possibility of higher returns.

Indexed Annuities

Indexed annuities provide returns linked to a market index, like the S&P 500, while protecting against market losses. They are a middle-ground option for clients seeking some growth potential without full market exposure.

Immediate Annuities

Clients needing immediate income can benefit from immediate annuities, which begin payouts typically within a year of purchase. They are a strong fit for retirees who want to turn a lump sum into a guaranteed income stream right away.

Deferred Annuities

Deferred annuities allow clients to invest now and receive payments later, often during retirement. This option is attractive for those looking to grow their money tax-deferred over time.

Learn the value of cross selling products to your clients

Key Considerations When Presenting Annuities

• Fees and Expenses: We must ensure clients understand all associated costs, particularly with variable and indexed annuities.
• Surrender Charges: It’s essential to educate clients about penalties for early withdrawals.
• Company Strength: Recommend products from insurers with strong financial ratings to ensure reliability.
• Client Goals: Align annuity recommendations with the client’s broader retirement and financial goals.

As agents, we have the opportunity to provide our clients with solutions that offer peace of mind and financial security. Annuities can be a cornerstone of a well-rounded retirement strategy when matched appropriately with client needs and objectives.

Click here to watch a quick YouTube video on Annuity basics.

If you’re interested in brushing up on your annuity product knowledge or exploring strategies to better serve your clients, let’s connect! Please give the Pinnacle Annuity Team a call 800-772-6881 x6003 for additional information. Helping clients achieve financial confidence is what we do best.

Risk Free Investments

In this post we explain some things about Risk Free Investments.  There are a number of risk free investments (no risk to principal) available to those looking for safe/conservative ways to earn interest on investments.  While it is smart to be conservative when approaching retirement or in retirement, it can be difficult to keep up with inflation only using strategies without market risk.  Money markets, CD’s and Annuities are three popular choices of focus in this post.

Money Markets

While Money Markets are safe and a convenient place to keep cash, they are simply not going to yield any type of meaningful return.

Certificates of Deposit

While better than a Money Market return, CD’s are still averaging less than 2% on a 5 year commitment nationally.  They are certainly safe but will not be likely to keep pace with inflation.  Market Linked CD’s may be a better choice for someone that is looking for the FDIC backing provided by CD’s.  Market linked CD’s provide principal protection but have a variable return that can range from 0% up to 8% or 9% depending on the terms and bank.

There are a number of different crediting strategies used but one of the more common ones is the “Basket of Stocks” approach.  The bank picks out a group of stocks (usually between 5 and 15).  If the overall portfolio is level or positive for the year, you will pay the stated/declared interest rate.  If there is an 8% interest rate declared, that is the amount you would pay for that year.  They repeat this process for the duration of the commitment.  If an 8% declared rate product is on a 7 year surrender schedule, the client will receive 8% for every year the account is positive.  They will receive 0% for years it is negative.   As a result, Market CD’s can be a good approach for the more conservative investor.

Annuities-

Annuities can be a good approach but you must do a great deal of research before you purchase one. There is a big difference between a SPIA, a Fixed annuity and an Indexed Annuity.   A fixed annuity (Also called a MYGA) can offer slightly higher rates than CD’s with the same term years. As of this post, the best 5 year fixed annuity is at 3.4%.

A SPIA (single premium immediate annuity) 

This product is based on your income and is not appropriate for any type of accumulation. Fixed Indexed Annuities can be a great option for account growth.  Although, they can also be a poor choice  this depends on which company and product you choose.  Fixed Indexed Annuities use market indexes (usually the S & P 500) to determine the amount of interest to credit to accounts.

They have crediting methods that provide a portion of the index growth to the account.  This is where there can be a wild difference in companies.  As an example:  One carrier currently credits the gain in the S & P 500 per year up to  a cap which is currently at 2.75%.  This means the most a client can get in a year is 2.75% return regardless of how high the market goes.  There is another carrier that credits 75% of the gain of the S & P over a 2 year period.  This would have provided over 22% interest  to an account in the 2012 to 2013 time period.   Obviously, it is important to choose the plan with the best crediting methods.  Because if you choose the wrong one it can cost a bundle.

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Apollo Global Management is setting the table to make a major move in the indexed and fixed annuity market.  Apollo owns Athene Annuities (an up and coming annuity company), recently purchased Presidential Life and now has purchased Aviva USA.  These moves should allow them expand on the limited number of states they currently offer annuity products in.

It looks like Apollo is setting the state to become more aggressive with product offerings and innovative products in the fixed annuity segment.  While the overall annuity market in the US has slowed down over recent quarters, the fixed indexed and fixed markets continue to grow.  A slew of companies have jumped on the band wagon and now offer fixed, indexed or Deferred Income annuities but they have not been able to meet the innovation or guarantees of the Guggenheim companies products.  (Security Benefit and Equitrust products)

Hopefully, Apollo will be introducing new products in order to provide some solid alternative to Security Benefit and Equitrust.   Time will tell.