However, the insurance value or wealth equivalent of deferred annuities is higher, stemming from “their unique focus on protecting against the small probability of living a very long time,” according to the study.
The study also showed that Black Americans had a lower expected value due to their generally shorter lifespans, but they tended to benefit more from the insurance component due to their uncertain lifespans. In general, women fared slightly better than men in terms of the money’s worth calculation, as did those with the highest level of education.
As with any financial planning decision or financial product, whether an annuity is a good fit for your client will depend upon their situation. If your client is covered by a traditional defined benefit pension from an employer as well as Social Security, they may not need to add an annuity as part of their retirement income planning.
On the other hand, for clients without a pension, having another part of their retirement income stream guaranteed can provide a level of comfort and stability.
Your clients look to you to help them not only decide if an annuity is right as a portion of their retirement income stream, but also to help them decide on the type of annuity (immediate, deferred, variable, etc.) that is best as well as the best provider for that annuity. If you decide that an annuity is right for them, your expertise is invaluable in analyzing the costs of various annuity products as well as any special features that might distinguish one annuity from another.
If you feel an annuity is not the right product for them or doesn’t add any additional value to the retirement planning that is already in place, they need your expertise to show them why you feel not adding an annuity is the best route for them.