How Annuities Can Increase Happiness in Retirement

How Annuities Can Increase Happiness in Retirement

The American College of Financial Services
December 3, 2019

A stable income is often the difference between living well and living in a state of perpetual worry. And this truth doesn’t change just because someone retires.

In the past, many retirees could count on defined-benefit pension plans to provide a stable income for life, but outside of public employees, few modern workers have pensions that guarantee lifetime income. This makes the job of financial advisors more difficult. After all, how can you help ensure your clients live a pleasant retirement and don’t run out of money if their only guaranteed income is from Social Security?

The solution could be to turn to annuities.

Defined-benefit pensions are, of course, a type of annuity, as is Social Security. However, your clients can purchase their own annuities as well and should strongly consider doing so. As Wade Pfau, Professor of Retirement Income and Retirement Income Certified Professional® (RICP®) Program Director at The American College of Financial Services, pointed out in a recent interview, an annuity can help clients meet their retirement spending goals with fewer assets than they would need with an investments-only approach.

Meeting spending goals is just another way of saying “living the retirement they imagined.” Instead of all of their retirement income being dependent on assets that might lose value in the market, an annuity provides peace-of-mind. It also makes planning for the future easier. When clients know how much income they will receive every month for life, they know what kind of housing and activities they can afford, allowing them to choose the lifestyle that makes them happiest—and they can be certain that their lifestyle won’t dissipate because of a market downturn or because they outlive their money.

When speaking to your clients about retirement, you should mention the unique role an annuity can play in their future happiness. While some clients may worry about costs, complexity, and the fact that purchasing an annuity is often an irreversible decision, income annuities are typically simple for clients to understand and are competitively priced, which allows most clients to purchase them without over-committing assets to one strategy. Deferred annuities are more complex, but require less commitment, allowing owners to change their minds down the line.

Most clients should begin considering an annuity in the five- to ten-year period before they plan to retire. To determine how much they should allocate to an annuity, count up reliable retirement income, like Social Security and employer pensions, and determine if there is a gap between what will be available to your client and what your client will need each month to live the lifestyle they prefer. An annuity is a great way to fill that gap. The only clients you might want to steer away from annuities are those who will have plenty of reliable income during retirement and those who would be left with too few remaining assets after purchasing an annuity.

For most retirees, the goal is to live comfortably and have the time and money to enjoy the people and passions they love most. Annuities can help your retiring clients do just that. And you can help them even more if you provide additional retirement income strategies, like those you can learn through The College’s RICP® designation program. It’s the designation you need to offer your clients the best possible advice as they advance toward and live in retirement.

Invest in your career with a professional designation.

Baby Boomers are retiring at an unprecedented rate, meaning that more and more Americans are facing the challenge of using their investments to maintain their quality of life. For them, the usual investment advice no longer applies. They need the unique strategies you can learn through the three-course Retirement Income Certified Professional® (RICP®) designation program. Help your clients thrive while growing your career.

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