Don’t Shortchange The Explanation Of Annuities’ Power
Today’s annuity products are wonderful devices for addressing the increasingly complicated challenges faced by current and future retirees. Income annuities, both delayed and immediate income varieties, help to leverage the law of large numbers through the principle of mortality pooling, creating larger sustainable incomes from a given lump sum asset than alternative income products and methods. In addition, they can guarantee that income for a lifetime.
Indexed annuities provide a safe money alternative to traditional products like fixed annuities or bank products, guaranteeing a return of principal while offering the opportunity to earn a higher return. Of course, with features like caps, participation rates, spreads and equity indexes, some of which may include multiple country or asset class indices, indexed annuities can require some explanation.
To truly appreciate the value today’s annuity products can provide, a simple five-minute explanation may be a starting point. However, like any robust sales process, educating the consumer on the pros and cons of these products relative to their alternatives nearly always makes sense, and will leave the annuity in the best light.
In reality, we live in a world where patience is at a premium and phrases like “KISS: Keep It Simple, Stupid” are words to live by. Both sales people and their customers often want instant answers to often complex questions and issues. However, since annuities are one of the few purchases that anyone will ever make to potentially last a lifetime, it does clients, agents, and the products a disservice to shortcut the explanation of their unique value in the context of the problems being addressed and the alternative solutions available.
One way to communicate how important it is to take the appropriate amount of time to understand and appreciate the power of annuity solutions is to think about the amount of time the client has spent thus far amassing the savings that ultimately will be used to fund the annuity purchase. And not just time the spent working, but the time spent learning – both secondary and college education – in the pursuit of skills that could be applied in the workforce to earn the money eventually saved.
Consider the following:
n The number of years spent in grade school and secondary school is 13. With 180 days per year on average for a school year, that’s 2,340 days of grade and secondary school. If classes go from 8 a.m. to 3 p.m., that’s seven hours per day, times 2,340 days. In total, 16,380 hours are spent to earn a high school diploma.
n You spent that 16,380 hours building knowledge and an academic record to get you into college. Assuming a four-year college and 160 days a year of class, that’s 640 days spent in college. If the average college day spent going to class and studying is eight hours, that’s 5,120 hours devoted to a college education. You spent that 5,120 hours in college becoming a well-rounded and learned adult, but also preparing for a career to earn a living. Assuming a 40-year career with 240 days a year of work, that’s 9,600 working days. If the average day of work is eight hours, that’s 76,800 hours of working life.
n You spent 76,800 hours working to support your family and lifestyle, and to help fund your future retirement. So in total, between your secondary and college education, and your 40-year working career, you spent 98,300 hours ultimately preparing for and funding for the last part of your life –retirement –which should be a time of great enjoyment and minimal worry.
n Your retirement could potentially last 35 years. That’s a total of 306,600 hours. So again, you may have spent 98,300 hours preparing for day you’d no longer have a steady paycheck, and that preparation needs to be robust enough to sustain you for potentially 306,600 hours without a wage.
With that perspective, doesn’t it make sense to spend more than a few minutes extolling the comparative virtues that annuities provide?
John Rafferty is vice president of marketing at American General Life Companies, www.americangeneral.com. American General Life is the marketing name for the insurance companies and affiliates comprising the domestic life operations of American International Group, Inc. American General Life Companies insurers offer a broad spectrum of life insurance, fixed annuities, accident and health products and worksite benefits to serve the financial and estate planning needs of customers throughout the United States.
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