Annuities are an investment vehicle for clients that continues to grow in popularity. Between 2021 and 2022 alone, LIMRA found a 22% rise in total annuity sales. Why are clients flocking to them? Here are some of the most common reasons that clients give for choosing annuities in retirement.
1. Guaranteed income
Income in retirement is the single biggest driver for buying an annuity. In a 2022 survey of over 900 investors aged over 45, LIMRA found that 49% of people bought an annuity to supplement their retirement income, making it the biggest reason for buying an annuity.
Retirement income is more comforting when it's guaranteed, and this remains a key factor in annuity purchases. Almost one in three people intend to annuitize their assets so that they can rely on a guaranteed payment for life. If you include those people intending to use a guaranteed lifetime withdrawal benefit (GLWB) for guaranteed income, the number rises to 56%, making it by far the biggest reason for investing in this assets.
2. Projected return
Asset accumulation was the second most popular driver to buy annuities among respondents to the survey, with 36% of people citing this as a factor. This is closely linked to the expectation of projected return on the accumulated funds, which was a factor for 15% of respondents when choosing an annuity. Accumulating and growing an asset is one area where variable annuities can come into play thanks to their diverse selection of investment options.
3. Tax-deferred growth
Tax-deferred growth, cited by 8% of LIMRA respondents, is another key feature of variable annuities. Owners can defer taxes during the accumulation phase, paying them later once the annuity begins paying out. This represents a benefit, especially for those that begin the accumulation process early, boosting the possible return by delaying tax on the annuity in the years before retirement when income tends to be higher.
4. Long-term care
One of the most comforting aspects of an annuity is that it can provide guaranteed income to help you pay for long-term care, which becomes increasingly important for people as they age in post-retirement. This was a comfort to 8% of LIMRA respondents, who intended to use their annuities to help pay for a long-term care insurance policy.
People can provide for their long-term care by purchasing certain riders on their annuities. These riders increase payments for a set period to help pay for long-term care when certain qualifications are met. Alternatively, some annuities allow people to make surrender penalty-free withdrawals from their contract to pay for time in a long-term facility.
5. Leaving a legacy
Many clients believe that the insurance company automatically keeps the money in an annuity after they die, but that's one of many myths about annuities. In fact, almost a quarter of all survey respondents looked beyond their own lives for annuity benefits, intending to leave funds for heirs or charities. Annuities can be excellent legacy options, given that they transfer probate-free in many states, freeing the beneficiary from the legal complications of dividing the estate.
Annuities allow their holders to name a beneficiary who can collect the funds if they die prior to beginning annuity payments. Even if annuity payments have begun, there are options for payments to a beneficiary after the death of an owner/annuitant. A life-with-period-certain option will pay out for a set period. If the owner dies before that period ends, the payments go to the beneficiary for the remainder of the period.
Clients may understand their reasons for buying an annuity, but they will still have questions. Learn how to answer frequently-asked questions about annuities, and help clients understand the basic terms and conditions surrounding annuities with this handy list.
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