Filed Under:Annuities, Sales Strategies

3 reasons annuities should help fund baby boomer retirement

The Lead

Annuity investments are not only tax-efficient but also ensure that investors receive a steady source of income as long as they live, no matter what the market goes through. (Photo: iStock)
Annuity investments are not only tax-efficient but also ensure that investors receive a steady source of income as long as they live, no matter what the market goes through. (Photo: iStock)

Are your clients fully prepared to provide for their golden years?

Have they figured out reliable ways to make their nest egg last for at least 30 years post retirement?

Maybe they are wondering whether annuities make a lucrative financial product to meet future needs.

Related: Annuities critical in retirement planning

Annuity investments are not only tax-efficient but also ensure that investors receive a steady source of income as long as they live, no matter what the market goes through. There are many other factors that explain why annuity sales are still going strong. Here are 3 major ones:

No. 1: Baby boomers are an ideal age to invest in annuities.

People typically purchase annuities in their mid-50s or early 60s and baby boomers are now in this prime age bracket. This group of aging Americans is growing significantly in number and will continue to increase in the coming decades. This will open up new avenues for insurance companies that sell annuities. Greying trends will see a significant rise from 42.5 million Americans to 64 million by 2025 and this risk-averse group of Americans will stick to annuities because they avoid risk and offer financial security. So, even if the market breaks record heights, baby boomers who are not willing to risk it will continue to make annuities popular as an investment option.

Depending on a client’s age, unique needs and savings, individuals can explore different annuity products that have the ability to protect them from market downsides. (Photo: iStock) Depending on a client’s age, unique needs and savings, individuals can explore different annuity products that have the ability to protect them from market downsides. (Photo: iStock)

No. 2: Annuities may offer financial certainly without high interest rates.

Interest rates have consistently remained low in the past decade and it is safe to assume that they won’t see a dramatic rise anytime soon. The Federal Reserve is planning to boost the interest rates but the changes will definitely not be major. So while the annuity interest rates may not see much hike, their sales will definitely see an uptick simply because they are backed by bond portfolios and guarantee assured returns. As baby boomers continue to shun risk and seek financial security, annuities will continue to gain popularity even with the slimmest yields. This makes it very clear that those who invest in annuities are not solely interested in returns.

Related: Baby boomers in worsening shape for retirement

No. 3: Government annuities are often overlooked but offer long-term payouts.

Social Security gives easy access to an annuity where benefits rise over time. It is an inflation protected bond that pays a COLA (cost of living adjustments) and this benefit comes at an additional charge with an individual annuity. Every single year that you delay receiving your social security payments from the time you are eligible to receive them, boosts your benefits by 8 percent. So while you wait for your payments you can increase your retirement reserve by purchasing an individual annuity that covers your earnings while your federal annuity grows. If you learn how to maximize your Social Security benefits, it could pay you as much as $15,834 every year.

Can annuities be purchased along with your clients’ self-directed IRA?

Those who want a minimum amount of income flowing steadily during retirement, investing in an immediate annuity makes perfect sense even for those who are nearing their retirement. Annuities not only help self-directed IRA investors keep up with inflation but also comply with required minimum distribution obligations. Depending on a client’s age, unique needs and savings, individuals can explore different annuity products that have the ability to protect them from market downsides. For all of these reasons, annuities will continue to evolve despite low interest rates.

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Nichole Morford

Nichole Morford
Managing Editor

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