Fees: An Important Minor Role In Annuity Buying Decisions

According to the LIMRA pool, the capacity of a product to generate income is the primary consideration for consumers when deciding to invest in an annuity. Fees play a relatively minor influence in this choice.

This year, sales of annuities have been brisk, thanks in part to the recent aggressive interest rate rises implemented by the Federal Reserve in the United States. According to LIMRA, sales of the items hit an all-time high of $79.6 billion during the third quarter alone, representing a 27% increase over the previous year.

Fee And Annuity Buying Decisions

During the summer, more than 900 investors found that the primary reason why 25% of investors acquired an annuity was due to the guaranteed lifetime income component of the product. The interest rate or predicted return was the second most common factor, accounting for 15% of the total.

The research shows that investors clearly understand the value of the income-generation features and the unique aspects of deferred annuities. In addition, the study shows that investors clearly understand the importance of the individual elements of deferred annuities.

This line of thinking was illustrated by the purposes that investors had in mind for their annuities. For example, 49% of those polled said they would use it to augment Social Security or their pension during retirement, and 36% said they would use it to help amass assets approaching retirement.

The study also demonstrated that fees are a limited factor among consumers, with as little as 2% of consumers considering listing fees an essential element. Even though the preliminary results might demonstrate that investors seek guaranteed income, the study also showed that fees are a limiting factor.

Consensus On Annuity

The consensus on annuities is that its associated products have hefty costs. However, fees are rarely listed as the most significant decision element. Generally, items with lower prices are not necessarily at that much of an advantage, and those with higher fees are at less of a disadvantage in making a purchase.

An investor’s first concern when deciding whether or not to buy an annuity is securing a steady income. Other considerations that go into this decision include:

  • Interest rates.
  • The safety of their principal investment.
  • The advice of their financial adviser.

Because approximately 94% of annuity purchasers with a formal written plan claimed they acquired deferred annuities as part of the plan, they are an essential product for those questioned. One type of annuity is known as a deferred annuity. 

Role of Advisor and Investor in Annuity

In an annuity, the investor can choose when payments begin. Financial advisers should have a strong understanding of the products above because of their critical role for investors.

Advisors should also be prepared to meet customers at their level of understanding regarding deferred annuities. The client’s knowledge of deferred annuities is likely to come from many information sources other than the adviser. 

The more advisors position annuities in an entire financial plan giving the clients the benefits of the products they will acquire, the more grants describe what will happen if more advisors place annuities in an overall financial plan.

LIMRA polled individuals with a minimum investable asset portfolio of $100,000 and ages ranging from 45 to 80. According to the study, older purchasers were more likely to consider preserving their principle a vital concern when acquiring an annuity.

Bottom Line 

In addition, there was a distinction between how different generations collaborated with a financial advisor while deciding to buy an annuity.

Younger investors have a greater propensity to place a greater emphasis on assured income. Also, older and retired annuity purchasers were more likely to depend on the suggestion of their advisers than younger or non-retired consumers. But, again, it may reflect their higher likelihood of established connections and regular communication with advisors.

Contact Information:
Email: tcarmack@hotmail.com
Phone: 6232511574

Bio:
I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.

Disclosure:
Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice filed, or is excluded from notice filing requirements. BWM does not accept or take responsibility for acting on time-sensitive instructions sent by email or other electronic means. Content shared or published through this medium is only intended for an audience in the States the Advisor is licensed in. If you are not the intended recipient, you are hereby notified that any dissemination, distribution, or copy of this transmission is strictly prohibited. If you receive this communication in error, please immediately notify the sender. The information included should not be considered investment advice. There are risks involved with investing which may include market fluctuation and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making an investment decision.

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I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.

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