By Brad Pistole
In my 17 years as a financial advisor, I have found that annuities are one of the most reliable products I can suggest to my clients.
This is not just from research, but from my lived experience. In 2008, I purchased my first annuity even though most advisors were suggesting other tactics. Now 17 years later, that annuity is still earning interest and protecting my principal, as intended. This sparked my passion for annuities and reiterated how they are a safe and powerful way to enhance retirement income for clients.
While daunting at first, building a deep understanding of annuities can empower you to find the best retirement income solutions for your clients that remain consistent amidst market volatility.
Explaining annuities to clients
When describing annuities to someone who is unfamiliar with them, I often start by sharing how there are many different types of annuities, but the most common types are designed to create contractually guaranteed lifetime income.
This is a surface level explanation but generally helps people begin to understand why this tool is a strong addition to their retirement plan. Similar to a life insurance policy, the annuity requires a premium to be paid into it.
This can involve a rollover from a tax-deferred account, like a 401k or 403b. It can also be a cash deposit from personal savings. An annuity provides tax-deferred growth to the owner. Distributions and lifetime income can be taxable or tax-free depending on the tax status of the account. Distributions from tax-deferred accounts will be taxable once the payments start.
However, this can also provide tax-free lifetime income to the owner if they use ROTH dollars to fund the annuity. Ultimately, the annuity will provide an additional stream of income for clients hoping to boost their funds available in retirement.
Building your understanding of annuities
It is common for advisors to be wary of a product they have limited experience with, so it’s best to start off with research. There are many scholarly sources that provide insight into the different types of annuities (fixed, fixed indexed, variable, etc.) and details of the inner workings of the policies. Some of my favorites include:
- “Retirement Planning Guidebook: Navigating the Important Decisions for Retirement” by Dr. Wade Pfau
- “Spending in Retirement: Determining the Consumption Gap”, Dr. Michael Finke, Christopher Browning, Yuanshan Cheng, and Tao Guo. Journal of Financial Planning, 2016, 29(2), 42-53.
- “Historical Pricing Variability in Immediate and Deferred Income Annuities.” David Blanchett and Branislav Nikolic. 2023.
- “Safe Money Matters” podcast hosted by John Maganaro featuring me, Brad Pistole
In addition to research, I’ve also found it helpful to see if the product is a good fit for your own financial portfolio. Examining the product as a buyer yourself can aid in how you describe the product to your clients. This will help you understand questions they may have about annuities when you present the idea.
I have found time and time again that my clients prefer to hear from me about why I have chosen to own multiple annuities inside my own retirement portfolio over the years. This personal experience instills confidence in them that an annuity could be right for them too.
Our goal is to find the best solutions possible for our clients. Sometimes, an annuity is the best solution for those who need additional guaranteed income in retirement. I’m lucky to have had many experiences with annuities and feel confident in sharing my knowledge with clients.
As you continue to grow your skills as an advisor, consider reading an article or listening to a podcast that describes the different types of annuities and how they work. Building your understanding of annuities can lead to long-term benefits for you and your client in any market.
Take it from me, I have personally owned eight different annuities dating all the way back to 2008. I love the benefits they provide for my own personal retirement income plan.
About the MDRT Author:
As the president of the Ozarks Retirement Group, Brad Pistole boasts the experience of structuring more than 2,000 annuities over the past 17 years. In the process of serving clients, he’s become an expert on income and bucket planning — helping clients set up different buckets of money to strategically outpace inflation while maintaining income security. Pistole is also a nationally recognized Ed Slott Master Elite IRA Advisor and educator, and he widely shares that expertise as the long-standing host of Safe Money Radio. Pistole is a 15-year MDRT member with 11 Top of the Table qualifications.
