How you can tailor the purchase of a fixed deferred annuity to help meet your client’s specific investment needs. 

When helping clients plan for their post-retirement years, a number of questions may come to mind. Your clients may have questions about where to invest their hard-earned dollars and the extent to which their money will be protected. You may have questions for them about how they’ll want to fund their retirement years and what other financial resources they may be relying on for their overall living expenses.

One way to help clients make the most of their investments while still supporting their various financial goals is by positioning the purchase of a fixed deferred annuity. A fixed deferred annuity offers flexibility for investors whatever their financial goals or current life stage. Consider how you can use the concept of a flexible investment as the basis of your sale, and how you can tailor the purchase of a fixed deferred annuity to help meet your client’s specific investment needs. 

Target Clients for Fixed Deferred Annuities

As you position an annuity, keep in mind the types of clients for whom fixed deferred annuities are a good fit. 

» Buyers who are interested in a hands-off approach to protecting and building their money before it is transferred to designated beneficiaries. 

» Conservative investors who value guarantees and don’t want to lose their principal investment. 

» Middle-of-the-road clients who want to use a fixed annuity for their safe dollars in their asset allocation. This can lower their overall volatility in their portfolio. 

Regardless of how clients intend to use the money, a fixed deferred annuity can ensure a client’s principal investment is protected and available when they need it. In addition, the fact that a client’s funds are truly safe with an annuity can allow them to take risks in other aspects of their portfolio.

Flexible Annuity Options

To gain an understanding of how a fixed deferred annuity can be part of your client’s overall financial plan, ask the following questions to help determine how the purchase can work best for them. 

» Are you looking for a safe place for your investment? Strong guarantees are among the key aspects of a fixed deferred annuity. 

A fixed deferred annuity provides a full guarantee that the principal investment will stay in place and will only grow. It also can provide minimum guarantees that can offer clients peace of mind in knowing that they will never earn less than the stated minimum. This benefit is increasingly important given the recent volatility of the stock market. Nothing will be taken away from your client’s principal as long as the contract is continued, and the investment grows tax-deferred.

In addition, some fixed annuities can provide a guaranteed return of premium — even during the surrender charge period. After the surrender charge period, the clients are guaranteed to receive their principal, minus any previous withdrawal at termination. 

» Do you have a nest egg to protect? A client who has an established nest egg can benefit from a single-premium deferred annuity. That’s because it allows for triple compounding to begin immediately upon purchase — as a client can reap the benefits of gaining on the principal amount, interest on the interest, and interest on money that would be lost to taxes. In this regard, this question can help position an annuity as a low-risk investment that is guaranteed to grow.

However, a client who doesn’t have a sizable nest egg still can benefit from a flexible-premium deferred annuity. A flexible-premium deferred annuity is a powerful tool, as it can systematically deposit a premium and accumulate assets for later use. A client who is dedicated to making ongoing contributions can achieve the goal of accumulating funds for retirement or wealth transfer. While creating a nest egg takes time, the facts that a fixed deferred annuity has flexible deposit options and allows for ongoing contributions are worthy of a conversation with your client. 

» What kind of income are you hoping to draw in the future? Income options from a fixed deferred annuity are numerous and can be tailored to a client’s specific situation. Buyers can opt for lifetime income or income for a certain period of time, and can build in survivor income access so their spouse or beneficiaries are taken care of after the buyer passes away.

Not only that, a deferred annuity can be turned from an accumulation vehicle to an income stream if and when your clients determine they need income to supplement their Social Security benefit or another source of retirement income, such as a 401(k) or pension. This means your clients can “flip the switch” at a later date and start receiving income from their funds for whatever their specified duration may be. These options provide yet another example of the flexibility afforded to a fixed annuity buyer, depending on their situation. 

» Will you need early access to funds? Most investments or insurance products give clients flexible withdrawal options to access a portion of the investment without incurring a surrender charge. The key is that a fixed deferred annuity has built-in provisions that allow a client access to money after a certain time period — most options allow access after two years. Many fixed deferred annuity options would allow your client the interest earned on the withdrawal or an annual withdrawal of up to 10 percent of the accumulated value, or IRS-required minimum distributions, or Internal Revenue Code 72(t) and (q) distributions.

A 72(t) or (q) distribution is a great way to allow someone to access a steady stream of income prior to the onset of Social Security payments or a pension. In addition, after five years, or when a client turns 59 ½, they can avoid a potential 10 percent early distribution penalty from the IRS. These types of withdrawals from fixed deferred annuities don’t conflict with either terminal condition or nursing home waivers, which generally only appeal to older purchasers. 

» Do you plan to bequeath money to a beneficiary? This question is a good setup for a client who has a substantial amount of money but doesn’t plan to receive an income from it.

A fixed deferred annuity is a great option for clients to transfer assets to their beneficiaries, as the proceeds are not taxed until a distribution is made. If you have helped a client preselect a payment stream, you also are helping the client’s heirs, whether they know it or not, from making poor financial decisions that sometimes can come with inheriting larger sums of money. Given the nature of recurring payments, there is no large tax burden for the heirs to shoulder as they could face with a single large lump-sum distribution. 

Whether your client is conservative or financially aggressive, young or in a post-retirement phase of life, a fixed deferred annuity will be a sustainable aspect of their overall financial portfolio, making sure they meet their financial goals.