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Bust these 5 myths to help grow FIA sales

People who have enough money to cover their short-term financial obligations are likelier to save for longer-term goals like retirement, which makes sense. Education can play a role, too. But myths and misconceptions can get in the way of planning for a secure retirement, particularly when considering an annuity. 

Eighty-five percent of Americans aged 40 to 85 surveyed by LIMRA agree guaranteed lifetime income is important for a financially secure retirement¹. However, only 19 percent of retirees and 21 percent of non-retired workers have a formal written plan for managing their assets, income and expenses in retirement.¹ 

Roadblocks to retirement security

A retirement strategy including products that can generate guaranteed income, like a fixed indexed annuity (FIA), could help provide the future financial security people want. Then, why don鈥檛 74 percent of people own any kind of annuity¹? Awareness may be a contributing factor. Research conducted for 麻豆传媒 found one quarter of Americans (23 percent) don鈥檛 know what an annuity is². Showing your clients the guaranteed income, growth and protection opportunities FIAs can offer, for example, may help them have more financial peace of mind for retirement.

Besides a lack of awareness, misperceptions can prevent some people from adding an annuity to their retirement strategy. Here are five common annuity myths you can bust for your clients:

Myth 1: Annuities are full of hidden charges

Myth buster:

The indices used in index interest crediting strategies do not include management fees. Insurance companies employ caps, participation rates and spreads to limit the interest credited in exchange for protection from stock market risk or losses. There may be a charge for income or other riders.

Financial professionals and the insurance companies must disclose all fees associated with annuities. They must clearly explain withdrawal charges, which may be incurred if the client: 

• surrenders the contract during the withdrawal charge period; or
• withdraws money beyond the penalty-free amount allowed in the contract.

Myth 2: Annuities are not tax efficient

Myth buster:

As long-term, tax-deferred products, annuities may be a valuable solution for people looking to grow their retirement savings. Annuity interest grows on a tax-deferred basis until a client begins taking withdrawals or surrenders the annuity. While there is no additional tax benefit associated with funding an annuity from a tax-qualified source like a 401(k) plan, annuities can provide other benefits such as lifetime income or a Death Benefit.

Myth 3: Annuities can鈥檛 keep up with inflation

Myth buster:

A FIA can help keep up with rising costs in a few ways:

• Growth potential 鈥� Since the annuity is tied to the performance of a stock market index, there鈥檚 an opportunity to capture a portion of gains when the market is up. 
• Downside protection 鈥� With a FIA, interest is locked in guaranteeing its accumulated value can鈥檛 be lost when the market declines.
• Tax deferral 鈥� With interest that grows tax-deferred, clients can potentially build more retirement savings with a FIA than they may be able to if their interest is taxed as income.
• Income riders 鈥� Clients can help manage rising costs in retirement to help keep their budget on track with payout options indexed to inflation.

Myth 4: Annuities are not liquid

Myth buster:

In most cases, deferred annuities allow annual free withdrawals up to a specified percentage of the contract鈥檚 value during the withdrawal charge period. Once the withdrawal charge period has ended, funds may be withdrawn without charges. (Although FIAs have liquidity benefits, clients need to remember the annuity is designed to help meet long-term retirement  savings and income needs.

Myth 5: Fixed indexed annuities are investments

Myth buster:

Fixed indexed annuities are insurance products designed to help clients manage certain financial risks in retirement like volatile markets, interest rates and longevity. FIAs do not directly participate in stock or equity investments, but they do provide the opportunity to earn interest credits that are tied to the performance of a stock market index. If the index rises, a client may receive a portion of that increase in the form of interest credits. If the index declines, a client may receive zero percent interest credits but never less than zero. 

Dispelling common annuity myths could help clients feel more confident making financial decisions impacting their retirement. Learn more about how fixed indexed annuities could work to help your clients achieve future financial security.

Insights on 麻豆传媒 Connect. Tips, tools and resources to grow your business by helping clients retire with confidence.

¹2023 Retirement Investors: Behaviors, Attitudes, and Financial Situations, LIMRA, 2023.

² 鈥淎nnuity Ownership Drives Retirement Savings Confidence, 麻豆传媒 Finds.鈥� Wakefield Survey for 麻豆传媒. 2022.

Withdrawals and surrender may be subject to federal and state income tax and, except under certain circumstances, will be subject to an IRS penalty if taken prior to age 59陆. 

Under current tax law, the Internal Revenue Code already provides tax deferral to qualified money, so there is no additional tax benefit obtained by funding a qualified contract, such as an IRA, with an annuity; consider the other benefits provided by an annuity, such as lifetime income and a Death Benefit.

Guarantees provided by annuities are subject to the financial strength and claims paying ability of the issuing insurance company.

Indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. Market indices may not include dividends paid on the underlying stocks, and therefore may not reflect the total return of the underlying stocks; neither an index nor any market-indexed annuity is comparable to a direct investment in the equity markets.

Although fixed indexed annuities offer principal protection from market downturns, the deduction of applicable charges could exceed any interest credited, resulting in the loss of principal.

The CPI-U is the Consumer Price Index for All Urban Consumers (Not Seasonally Adjusted). The Inflation-Indexed Income option increase, if any, is capped at 10% each Contract Year. The maximum duration of Inflation-Indexed Income option increases, if any, is 30 years or until your annuity鈥檚 Accumulated Value is reduced to zero, whichever occurs first.