Even though a payout annuity can be a powerful retirement income solution, some advisors miss opportunities by not discussing this option with their clients.
Life annuities generate the highest guaranteed lifetime income of all products at retirement. They’re the only income product that has guaranteed payments that may be indexed for life. Serving as the foundation for a retirement plan, life annuities can generate income that help address your clients’ needs and goals, covering basic expenses through retirement.
With so many benefits, why aren’t more Canadians purchasing payout annuities? Many people just don’t understand them.
When you talk to your clients about payout annuities, they may express some objections; help them make an informed decision with these explanations:
I don’t want to lock up money with an insurance company. I want access to my money.
Generally, clients should not annuitize their full retirement portfolio. By helping to cover basic expenses with a life annuity through retirement, clients can hold a portion of their portfolio in liquid assets, providing access to money for unforeseen circumstances.
The annuity purchase is irrevocable, but clients are exchanging capital for income that will:
- not be affected by market returns or interest rate changes,
- not require active management or investment decisions, and
- help mitigate inflation risk (if clients purchase an indexed annuity).
Interest rates are too low – I want to wait until they improve.
If some of your clients require a guaranteed level of income from their investment portfolio, leaving investments exposed to market volatility while waiting for interest rates to move could be detrimental to their financial well-being.
As well, clients benefit from more than interest rates when they purchase a payout annuity. Because of insurance credits, as individuals pass away and those income payments are no longer required, their remaining premium stays in the pool to fund future income payments for the survivors within the pool.
That means, if I die too early, I lose my original premiums.
A client can select a guaranteed period during which a death benefit is paid to the beneficiary, if the client dies within the guaranteed period. Depending on the circumstances, the insurance company will pay the benefit as a continuation of income payments for the balance of the guaranteed period, or will pay the benefit as a single lump sum.
In addition, joint life annuities ensure that spouses continue to receive income on the death of the annuitant or joint annuitant.
I won’t live long enough to benefit from life annuity payments.
Statistics show that at age 65, life expectancy is 86.6 for a male and 88.5 for a female. Furthermore, a 65-year-old male has a 39% chance of making it to age 90, while a female has a 49% chance. For a 65-year-old couple, the chance of one individual making it to age 90 is even higher at 69%.*
These statistics show why it’s important for your clients to plan into the 90s, even to 100. While it’s true most people won’t live to see a century, no one wants to risk outliving their savings or, even worse, having to depend on loved ones to meet basic living expenses. Because we can’t predict how markets will fare, clients can help cover their basic expenses through retirement with a life annuity.
If you have clients age 55 or over, they may be thinking about the following retirement concerns:
- Will my income last a lifetime?
- Can I afford to take risks with market volatility? What if I don’t have time to recover from years of negative performance in the early years of my retirement?
- Will I have a guaranteed income stream to cover basic expenses through my retirement?
- How can I preserve the purchasing power of my assets and protect against inflation with an automatically increasing income stream?
Starting a conversation about payout annuities and explaining how they work could lead to a more confident retirement for them and business growth for you in the quickly expanding retirement market.
* Source: Life Insurance Mortality Table published by CIA (Canadian Institute of Actuaries), modified for Sun Life Financial experience.