Revealing Questions

Here are some questions to ask seniors considering an annuity purchase.

By Lucretia DiSanto Jones

The National Association for Variable Annuities recently released a list of questions that seniors should ask themselves when considering the purchase of an annuity.

Advisors can turn these questions around, putting them to good use when working with senior clients who have inquired about annuities—or whom the advisor believes would be well served by an annuity product. They may very well prompt your clients and prospects to make an extra effort to truly understand annuities before buying one.

Q: What are your retirement goals and objectives?
A: It is important that your client understand his stage of retirement and define his personal retirement goals (for example: travel, live comfortably at home, leave money to heirs or start a second career). You know that your client’s needs will be very different if he is entering retirement at age 65, as opposed to living in retirement at age 80, but you must help him recognize this fact.

Q: When do you expect to retire?
A: Impress upon your client that estimating when he expects to retire is a critical step in structuring a financial retirement plan. Many Americans today are retiring earlier than previous generations.

ADVISORS MUST EDUCATE CLIENTS THAT THERE MAY BE CHARGES TO WITHDRAW SOME OR ALL OF THE FUNDS IN AN ANNUITY DURING THE EARLY YEARS OF THE CONTRACT.

Q: How long do you expect to live in retirement?
A: Americans are living longer, and it is more common for them to spend 25 or more years in retirement. Projecting a client’s life expectancy will help ensure that his savings will sustain his envisioned retirement lifestyle. Help him estimate his life expectancy, considering such factors as his current health, the life spans of immediate family members, his current lifestyle, and his outlook on life.

Q: Do you need supplemental retirement income?
A: An annuity can be used to supplement a client’s other retirement income sources to help cover expected living expenses. By helping a client calculate the gap between available retirement income (Social Security, a pension and savings) and his essential living expenses (housing, insurance, etc.), advisors can demonstrate how an annuity can be valuable.

Q: Do you want your retirement savings to continue to grow?
A: As Americans spend more time in retirement, many are in a position to keep a portion of their assets invested in equity-based products, where the highest returns have traditionally been, rather than in more conservative investments, such as CDs and bonds. Advisors can pose this question to help point out that deferred annuities allow assets to grow tax-deferred, provide protection from downside market risk and offer the option of guaranteed lifetime income payments at some point in the future.

Q: Do you understand how an annuity can help meet your retirement needs?
A: Many clients may not understand that an annuity is the only personal retirement product that provides a guaranteed paycheck that cannot be outlived. Advisors must point this out. In addition, advisors should explain to clients that deferred variable annuities allow clients to take advantage of tax-deferred investment growth, while providing “living benefits,” offering insurance protection from downside market risk and a variety of options to access their money.

Q: Do you understand the surrender periods associated with annuities?
A: Advisors must educate clients that there may be charges to withdraw some or all of the funds in an annuity during the early years of the contract, generally five to seven years. Explain to clients that while most annuity contracts have surrender periods, many newer products have short or no surrender periods.

Q: When will you need access to the money in your annuity?
A: Many, if not most, clients do not realize that one feature many deferred annuities offer is the ability to withdraw a portion (for example, 10 percent to 15 percent) of their initial investment each year without surrender charges. Many annuities also provide the contract holder with full access to his money—also free of surrender charges—should a serious illness occur. An awareness of this fact may help a senior client feel more at ease with the idea of purchasing an annuity.