Five years ago my air conditioner died when it was 105 outside. I called a well-known company and they sent out a young man to fix it. We got to talking and he said he was leaving the company to start his own HVAC repair and new-installation business, which he did. Of course I called him each spring to check my AC unit as I never wanted to go through that horrible week when we had no AC... preventative maintenance is now my mantra! Of course, each year I told him to get his own health insurance (since he lost the group plan of the old employer.)
At 30 years old, he thought he was superman and of course he kept putting me off. I kept reminding him every six or seven months via an email of what COULD happen to his wife and family without basic health coverage. I finally convinced him to get a good, solid, inexpensive, catastrophic family plan.
He came out this week to check our furnace and AC (which is 17 years old and we're due for a new one) and he told me his wife (age 29) had a double mastectomy three months ago and is in the reconstruction phase. He had a $6,000 deductible plan and while that "hurt" it was nothing compared to the $200,000 that this is going to eventually cost (she is doing fine.)
He would have lost everything... his business, his savings, his kids college funds, the whole enchilada. At age 30 he would have had to declare bankruptcy which would stay on his credit record for many years and he'd never get financing to grow the business. (No one in America should have to lose everything because the get sick... but don't get me started on that!)
Did I feel good about what I do when I heard his story? Damn right. It reminded me of a poem I saw recently, so I'll share it with you.
* * *
Because he loved me,
He did the dishes
Rubbed my feet
Surprised me with tulips
Took me to musicals even though he didn't like them
Carried my bags while I did the shopping
Held my hand.
He died of cancer four years ago.
Because he loved me,
I can stay in our home.
I can be here for our children.
I can afford to pay for their college education.
I can worry about the other things in life besides money.
He still loves me. And he still shows it.
* * *
(If you need a good, honest person to check, repair, or replace your furnace or AC unit, let me know and I'll give you his number.)
-Al
Here is a basic truth: You WILL have an annuity... because it is the one financial vehicle that will guarantee you an income that you can't outlive.
In the "good old days" you worked for a company and they had a defined BENEFIT pension... which meant you knew how much you would get each month.. it was "defined" in advance.
Except for some government workers, most people now have defined CONTRIBUTION plans... where you pop in some money and the company pops some in and YOU invest it in one of several (often crap) mutual funds they offer you, and you hope and pray that they do well and you collect enough cash to live on in your older years.
So how has YOUR 401k done? Not that great? Join the club.
Fortunately, it is not too late to repair a cracked nest egg and the sooner you do something about it the more "candy" your egg will have.
People tell me "But my funds are coming back!"
I say "Do you believe they won't crash again and take your 'winnings' with them down the toilet again?"
If the last crash didn't scare you enough to get your money into safe, no-lose vehicles, the next one will... and will probably leave you in a financial postion were it is too late to patch the nest egg... and you're going to retire to a dumpy little apartment... eating cat food three times a week.
An annuity will prevent that... but people simply want to look "short term" and not worry about the greater risk which is LONG term!
I tell people that I don't sell insurance, annuities, disability coverage, or anything else. I "title" myself as a Retirement Income Specialist with the ability to repair a broken nest egg. But everyone ignores me thinking that their funds will come back and all is going to be OK. Yeah, right.
For a few people who have stock/fund/bond brokers who know what they are doing, it will be OK. But most brokers hate insurance products even though most have a license to write them (I don't have a license to sell funds, stock, etc.) Brokers don't like insurance products because they make far, far, far more on funds, bonds, and other equity-market products.
Most folks don't have a broker anymore... they do their own investing via the online sites like eTrade... and Wall Street insiders know for a fact that "the small investor is always wrong."
If you have half a brain, you will have, or will get, an annuity... probably more than one. It's the truth. Ignore it if you wish, but it's the truth.
There are lots of flavors of annuity plans, and I've talked about fixed annuities, indexed annuities, and immediate annuities. The concept is the same for all. You put money in now which is called the "accumulation" phase," it gets tax-free interest added to it, and at a later time you "pull the triger" and start the "payout" or "annuitization" phase... which can be for life or a period of years or both (whichever is longer.)
Agents like me are bombarded with info on how to educate clients on the benefits of annuities, usually a specific one from a specific company. I thought you'd like to see how WE are trained in annuities by the "insiders." The following is from a "pitch letter" I received a while ago. It is directed to agents... not the public... and I think you will find it interesting.
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When clients see the attractive features of annuities — such as the annual reset no-loss guarantees of indexed annuities, the appealing interest rates of fixed annuities, or the income-for-life guarantee of all annuities — they may say to themselves, “It seems too good to be true. What’s the catch?”
Some see surrender charges [similar to an early-withdrawal on a bank CD] as the catch, and object. “That’s a deal-breaker,” they say. “I don’t like having my money tied up.”
How can you effectively address this objection? Here are four ideas.
#1 Check priorities
Your clients often have money stored in various financial products through various providers, and when considering where to put their retirement money, they’ll usually look at a number of different criteria: They want their money to be safe, they want the potential to earn a high interest rate, and they want to be able to move their money whenever they want. In short, their three objectives are safety, earnings potential, and liquidity.
One question you can ask clients early in the sales process — long before you present a product — is, “In what order do these three goals matter to you?”
Anyone who lists liquidity first should not buy an annuity, but very few people will put liquidity first. Most will name “making sure my money is safe” as their No. 1 priority. The typical order is safety first, earnings potential second, and liquidity third.
For the annuity specialist, this order is wonderful, because annuities offer excellent guarantees of safety, plus the potential to earn a better interest rate than other safe alternatives. So, when clients object later on to the surrender charge, you can remind them that liquidity is third on their list of priorities.
There really isn’t any other product that offers a similar safety and earnings potential to annuities — which means that wherever your clients have their money today, they are compromising on either safety or earnings potential in favor of liquidity.
What sense does it make to compromise your first or second priority to achieve your third priority?
#2 Learn from the bank
Customers need only look as far as their bank accounts to see that it’s impossible to obtain safety, earnings potential, and liquidity in one product.
Let’s say you have a checking account, which gives you excellent safety and liquidity. If you tell a bank employee that you want more earnings, they will offer you a certificate of deposit, which limits your liquidity. In fact, the longer you agree to limit your liquidity, the higher the interest rate your bank can offer you.
An annuity offers your clients safety, earnings potential, and some liquidity — and as they can see from their bank, this is a very attractive combination for one product to offer.
#3 Illustrate the fairness concept
Now that your surrender-charge-phobic client has learned that any product offering safety and earnings potential requires a time commitment, you can then show them how those who break that time commitment and pull their money out early cost money to the company offering the product — and that company needs to recover those costs from somebody.
The company could charge their entire client base by offering lower caps — that is, by taking it out of every customer’s earnings potential. Most of your clients would consider that approach to be unfair and would rather see the company charge only those people who cost the company money by breaking their time commitment.
Guess what? That is exactly what an annuity company does.
If your client doesn’t break their time commitment, they won’t be required to pay the surrender charge, and they won’t lose anything related to the other customers who did break their time commitment.
#4 Leverage the power of choice
It empowers our clients to offer them choices. To that end, you can offer annuities with a range of surrender charge durations. Clients will easily see that accepting a longer surrender charge duration often comes with certain benefits, such as a higher interest rate or a premium bonus. When they see that there are benefits associated with the restricted liquidity, the surrender charge feature is more acceptable.
You can also help them to understand the provisions that allow them to take partial withdrawals — or even full withdrawals under certain hardships — without a surrender penalty. This will help them realize that the annuity is not completely tying up their money.
The bottom line is that clients are not as familiar with annuities as you are. These four strategies can help your clients understand the rationale behind the surrender charge — and often, understanding leads to a favorable purchase decision.
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