Read time: 5-minute article

The annuity puzzle: reframing concerns into opportunities

This content is categorized as:

Including a source of guaranteed income in a client’s retirement strategy is becoming increasingly important, especially as the cost of living increases and the market can be volatile.

While many people consider a “retirement paycheck” appealing, you may have found that the minute an annuity is mentioned, the conversation hits a standstill. It turns out your clients may unknowingly bring hidden biases to the table and these prevailing concerns may prevent them from making appropriate financial decisions. This mindset can be puzzling.

By effectively pinpointing these behavioral cues, you can successfully remove retirement planning roadblocks and help your clients take steps to improve their financial security for the future.

Research puts the pieces together
Athene commissioned two experts in judgment and decision-making at the UCLA Anderson School of Management to review the research into what has become known as the “annuity puzzle.” They identified four main sources of consumer uncertainty around the decision to purchase an annuity: longevity, spending, investment outcomes and decision. Within these sources of uncertainty are behavioral biases that may inhibit annuity purchasing from the very consumers who could benefit from them.

Your clients may unknowingly bring these biases and irrational concerns to the table — interfering with their ability to plan for a financially secure retirement. By spotting biases early and knowing how to remove the roadblocks their influence may have, you can reframe the conversation to find solutions that help address clients’ concerns and meet their needs.

Clear retirement planning roadblocks and find opportunities with these helpful guidelines

Longevity Uncertainty: How long will I live?
A common behavioral bias is the fear of death. People tend to avoid thoughts of their own mortality and discussing an annuity may bring these thoughts top‑of‑mind. People may also believe they won’t live long enough to recoup the initial premium, making annuities look like a "risky" purchase.

  Roadblock removal tips:

  • Emphasize that clients are not just receiving an income stream but an annuity can enhance financial security for life. It's like receiving a "retirement paycheck" they can count on for the rest of their lives.
  • Focus on the age to which a client could live instead of the age they might die. The average 65-year-old American can expect to live until age 78, on average, and some people will live even longer. We need to help account for that in retirement planning.
  • Leave out mentions of death in your conversation and (as state and federal regulations allow) in promotional materials. Annuities naturally lend themselves to the conversation of longevity, compared to life insurance which is based on how soon one might die.

Spending Uncertainty: How much money will I need to cover that amount of time?
The decision to purchase an annuity is closely connected with projections about one's future spending needs in retirement. Many clients may be overwhelmed by trying to predict health-related and living expenses in advance. Instead, they tend to prioritize the here and now over the distant future. They may also believe a future lump sum — which sounds like a lot of money — is more adequate than the equivalent monthly payments when it comes to serving their needs.

  Roadblock removal tips:

  • Bring your clients’ future selves into the present by strengthening their emotional bonds to the future. You’ve probably heard of the "aging face" apps. While a bit too realistic, these can make the inevitable process of aging hit closer to home. Also, lean on credible statistics to help give them an idea of how much money they may need for health care expenses. Then, show that amount in monthly and yearly terms.
  • Prompt empathy by helping them envision who they will be and what they want to be doing when they retire. What do they want out of their retirement — travel, a second act career, volunteering or life in the slow lane?
  • Reduce the sacrifice they may feel in the present by linking it directly to future spending. Show them how annuities are similar to a set it and forget it approach. Money is put in now with the potential for growth, and then they can experience the financial benefits when they retire.

Investment Outcome Uncertainty: How would an annuity perform for me compared to other investments?
You may encounter the objection that annuities do not offer the same returns as other investments. Perhaps your clients have the bias of being overly optimistic about their ability to manage their own finances and distrust financial institutions to do it for them. Clients could also be biased expecting that future market performance will echo the recent past, so they are less interested in annuities in the midst of a bull market.

  Roadblock removal tips:

  • Annuities are insurance, not investments, and are designed to help protect their dreams for the future.  
  • By showcasing the spending power an annuity can offer, rather than the returns it could provide, clients are more likely to see the value. With a “retirement paycheck,” they will have a reliable source of guaranteed funds to cover some of their future expenses.
  • Cultivate trust and emphasize the insurance company’s competence and commitment to customer satisfaction. Discuss the financial strength, track record and vision of the carrier you represent.

Decision Uncertainty: Am I making the right choice?
A fundamental uncertainty comes from simply lacking the confidence to make good financial decisions. This uncertainty is amplified when people are confused by information or overloaded with options which may cause your clients to freeze.

Roadblock removal tips:

  • Simplify the information using clear and concise language. Avoid technical industry jargon where you can.
  • Present clients initially with a small number of options tailored to their needs to help prevent "choice overload." Take the time with clients to uncover their needs and goals regarding their retirement savings and lifestyle. This will help you narrow down and present the best solutions.
  • Ask if they would like you to provide timely reminders detailing the when, where and how of a specific decision. Research has shown when reminders are given, people are more likely to take action. Provide clients with a roadmap of the annuity buying process.

Help clients enjoy the next chapter in their lives
Modifying the retirement planning conversation to address both rational and irrational concerns involving annuities can empower your clients to feel more confident about taking steps to improve their financial security for the future. Start removing their retirement planning roadblocks with these guidelines and more helpful tips in the whitepaper "Solving the annuity puzzle: a behavioral analysis." 

Download the whitepaper

This information is brought to you by Athene — where innovative annuity solutions are powered by unconventional thinking.