Column: Boosting retirement income with annuities

By Brian Walsh

Fear of the unknown can lead to missed opportunities throughout our lives, including in financial planning. As advisors, we have a broader view of how each part of a client’s financial plan benefits them – even if they sometimes can’t see the big picture.

Annuities, for example, may be unfamiliar territory for clients but can be powerful tools that produce a guaranteed income. It’s on us to guide clients through solutions like annuities and explain why they can be good additions to their financial portfolios. Our holistic view allows clients to focus on their daily lives, knowing that their retirement and other financial goals are planned for.

What are annuities?

An annuity is ultimately an insurance contract with a carrier. These investments generally involve paying either a lump sum at once or investing into a policy over time. The insurance company provides a guaranteed income stream paid out according to the guidelines of the contract. I’ll often suggest an annuity to someone who has available capital to make the investment now but will need a boost to their income to maintain their current lifestyle in retirement.

The client will be taking a risk in some cases where annuity payouts are not adjusted alongside inflation. In these cases, the investment would underperform and not account for inflation rates before disbursement. While it may be difficult for clients to perceive the benefit due to the risk involved, annuities are a powerful tool to bolster a financial plan when used properly.

Why annuities?

Annuities can be a great solution to increase monthly income during retirement and it's important to help the client see why. Often, I work with clients who think annuities are not something to mess with. They may have watched a video online poorly explaining the concept or heard from family or friends that annuities are risky and not worth the investment.

These generalizations are why advisors are still seen as trusted sources in the era of digital misinformation: we can carefully select an annuity that meets each client’s specific needs. Educating your client on the inner workings of annuities and determining the best selection for their financial plan will ultimately lead to a strong portfolio awaiting the client in retirement.

Some advisors fail to personalize their clients’ annuity plans, resulting in solutions that do not meet their specific needs. Annuities are not a one-size-fits-all tool. There are many factors to consider and it’s important to walk your client through the rationale of the annuities you selected.

For example, if someone is currently sitting at a future monthly income of $4,000 through their retirement plan but plans to spend $7,000 a month, they will need to boost their monthly income. Based on their financial history and overarching goals, I would review annuity plans from various providers.

Variable or fixed?

Would a variable or fixed option be best? How much capital is the client looking to invest? What are the pros and cons of each? These are the questions you should ask yourself when sorting through the best plan for your client.

As with any product or solution, the key to success is research and education. Taking the time to find the best annuity for your client’s needs and explaining why it fits their plan and goals can make all the difference in their financial situation. Establish a sense of trust with the client by providing full transparency during this process.

Defining financial jargon and explaining the inner workings of the annuity will make your client feel confident in their decision, as well as their selection of you as their advisor. Personalizing a financial plan with tools like annuities is why clients trust us with their financial goals.

About the Author
Brian Walsh, CLU, ChFC, RFC, cofounded Walsh & Nicholson Financial Group in 1991 and has 29 years of experience advising individuals and businesses in the areas of Wealth Management, Estate Planning, Retirement Planning, and Insurance Services. Brian holds FINRA Series 7, 6, 63, 24, and 65 securities registrations and insurance licenses for Life, Health, Disability, and Fixed Annuities.
Brian is a Top of the Table member of the Million Dollar Round Table (MDRT), the premier membership organization for financial services professionals, contributing to the organization in various roles through his 30 years as a member.