Making the Complex Simple: 6 Questions to Ask Clients about Annuities

Annuities can be an important potential solution in discussions about clients’ retirement savings and income goals. But the sheer number of annuity products available and the various features and benefits of each can seem complicated to some clients as they try to understand what is right for their personal needs.

Financial advisors can simplify this process by waiting to conduct deep discussions about product features and benefits until after they’ve identified the potential roles an annuity might play in a client’s plan. An advisor may start by posing the following six questions to clients to uncover their top priorities for savings, income, and protection. The resulting conversations may even allow advisors to start narrowing down the type of annuity that might fit a client’s specific needs.



As clients approach retirement, their financial emphasis should shift from building savings to ensuring predictable income. Saving enough to support their desired retirement lifestyle is only one part of the equation. Without the right tools to turn those savings into a steady "retirement paycheck," clients may struggle to meet their monthly expenses. When you consider that Social Security only covers 40% of the average earner’s pre-retirement income,¹ the need for additional guaranteed retirement income is apparent.

Annuities can be an effective addition to a retirement income plan. They are the only products that turn a portion of retirement savings into a stream of regular income payments that can last for the client's entire life. Depending on the type of annuity they choose, clients may even have the flexibility to determine how much income to receive and when to begin receiving it.



Running out of money in retirement is the top concern for most clients, according to a recent survey of CPA personal financial planners.² Increasing life expectancies may be part of the reason for this worry: People are living longer than ever, with 65-year-old men expected to live to age 84, and 65-year-old women expected to live to age 87.³ Given these longer lifespans, old strategies of securing retirement income through a diversified mix of assets like stocks, bonds, and cash may not be sufficient.

Annuities can provide income that lasts for life, helping protect against longevity risk. Clients can choose from annuities that begin making payments immediately or later in retirement, depending on their needs.



People approaching retirement typically shift a greater percentage of their savings into investments considered to be safer, such as fixed-income instruments. But even the value of fixed income investments can rise and fall with changes in interest rates.

For clients who are concerned about protecting or generating income from their savings, you can discuss how putting a portion of retirement savings in certain annuities can insulate that money from market fluctuations and ensure a stable source of funds to tap for future expenses.



Some clients are looking to add stability to their income in retirement and ensure they won’t run out of money. At the same time, they don’t want to neglect opportunities for growth that can help their savings outpace inflation.

Some annuities offer the chance to participate in the market’s growth, while at the same time providing some protection against downturns. If your client is interested in striking this balance, consider discussing annuities designed to provide growth potential with some downside protection.



IRAs and 401(k)s offer the benefit of tax-deferred growth to help build retirement savings faster, but many diligent savers find they’re already making the maximum allowable contributions to those accounts. Adding an annuity to a financial plan can provide another source of tax deferral for non-qualified assets.⁴

Annuity owners who put after-tax money into an annuity generally don’t pay income taxes on the interest earned on purchase payments until they begin taking withdrawals from their annuity — a feature your clients may be unaware of.



Certain annuities offer options to let surviving spouses assume ownership (including income payments) or establish withdrawals to provide income for two lives. Other annuities offer death benefits that pass the value of the annuity on to a beneficiary.

The flexibility of annuities provides many opportunities to address clients’ specific retirement needs and concerns. Asking the above questions can help financial advisors gather valuable information about a client's financial priorities, and start in-depth conversations that help clients understand the potential role for annuities in their plan and the specific benefits they’re seeking. Through these conversations, clients are in a better position to choose an annuity product that fits their long-term goals.