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“From an economist perspective, annuities are wonderful because they give you guaranteed income for as long as you live,” she explains. “But a lot of people see them as unfair because they think ‘I’m going to give this money to an insurance company. And if I live a long time, that’s great. But if I don’t, the return on investment might not look as appealing.”
What does she recommend advisors do to help their clients work through this type of thinking? Two options may help, she says. One is to walk through the reasons an annuity is like a pension plan, she says.
“If they think of an annuity is like their own personal pension that they’ve been contributing into for many years, it starts to feel a lot more palatable than if it’s just they handed $100,000 to an insurance company,” she says. “Just reframing [the idea] a little bit and getting people to think of it more like a pension than thinking of it as a financial product that you’re hoping to get a return on investment for can change the mindset.”
She also recommends “preconditioning” clients when they are younger, and earmarking a portion of retirement savings for an annuity.
“You do want to give people the option to back out if things have changed [by retirement], but laying the groundwork of a the plan, and [saying] ‘this is how we’re going to do this, and this money is earmarked to go into an annuity,” I think helps.”