When it comes to promoting financial products, marketers like to use the term persona. That’s really just another word for clients who have things in common. For the purpose of this discussion, let’s focus on a middle-aged professional in the last 10 or 15 years of his or her working life and currently earning a good living.
Our target client is accumulating a nice nest egg, which might be growing because—pardon the pun—the children have left the nest. The kids are on their own and are making their own way in the world. (Thanks to you they have the tools to succeed, and you’re rooting for them.)
The nest egg we mentioned could simply be a savings plan that accumulated over the years as the client maxed out the 401(k)’s and IRA contributions. Your client, after many years of wisely living below their income level, has continued those habits of frugality and sensible spending, is debt free, and now is entering a time when that nest egg will most likely double.
So this particular persona is in the happy quandary of trying to figure out how to make those rapidly growing savings pull their weight in that over-the-horizon retirement.
And, nowadays, CDs and savings accounts are performing miserably. But at least the funds are not at risk. Your client may already have a money market account that yo-yos up and down. The money invested there is fun to watch, but the client would not put too many of those eggs in a volatile environment that has often proved to be an income planning basket case.
So how do we help our client redirect all that savings into a retirement income planning position that leverages tax advantages and provides a sanctuary from risk and volatility? If your client is in a position to move some or all of a low-earning savings account, investing in an annuity is a wise choice.
Some selling points to consider:
- An annuity amounts to a paid-up insurance policy combined with a tax-deferred savings account.
- Our previously mentioned persona would benefit most from a deferred annuity, which would accumulate tax-deferred interest and, depending on the original investment and rate of growth, provide a generous monthly income.
- Your client begins paying tax on the monthly income during retirement years when a lower tax bracket is likely in effect.
- An annuity is an ideal addition to the client’s lifetime Social Security benefit. Your client could purchase an annuity that generates a matching payment to significantly augment the monthly retirement income check.
Two types of tax-deferred annuities to consider
If stability and guaranteed interest rates are what your client is after, the fixed annuity is the best choice. It provides stability and guaranteed growth.
Or the client might opt to invest in a variable annuity. This annuity pays interest based on a selection of investments and how they perform. There is no guaranteed payout, but it could be higher than the fixed annuity.
Go for both?
Your client might be interested in the stability of a fixed annuity as well as the higher growth potential of its variable counterpart. Also, one option for the variable annuity buyer is the flexible premium plan.
With the flexible premium annuity, your client can contribute to the original principal and accelerate the growth. Perhaps the client might decide to cash in or cancel an insurance policy and redirect the proceeds and the former insurance premiums to this plan.
Whichever plan your client chooses, you have jumpstarted the process by paying attention to the persona. It’s all about empathy and recommending what is best for the client, which is why you do this kind of work.