Amid high inflation and market volatility, annuities have been selling like hotcakes. But whether that’s good or bad for clients depends on the situation—and whom you ask.

“Americans are living longer, and financial security through retirement is a big challenge,” said Whit Cornman, a spokesperson for the Washington, D.C.-based American Council of Life Insurers. “Guaranteed products [like annuities] help people live and retire with predictable income and financial peace of mind.”

But Colleen Jaconetti, a senior manager in Vanguard’s Investment Advisory Research Center in Malvern, Pa., has a somewhat more nuanced opinion and says there are other options besides annuities. “For the majority of investors, retirement income needs can be successfully met using their investment assets and implementing a dynamic spending strategy,” she said.

But she adds, “There is the risk of running out of money.”

Annuities can be a “viable option” for solving that longevity risk, she added, but “it is important to note that while [clients] will be getting an income for life and will not outlive their money, there is a cost. They will need to hand over a portion of their investment assets to the insurance company and there will be a fee for this type of guarantee.”

Pre-Retirees Worried About Income
Fear of outliving your savings is a common problem that ranks highly in many surveys of investor anxieties. “Seventy-eight percent of pre-retirees worry that market volatility will impact their ability to retire on time,” said Jared Nepa, vice president and national sales manager for annuities at Lincoln Financial Group in Radnor, Pa., citing data from a recent company survey.

Mike Morrone, vice president of business development for annuity products at Nationwide Financial in Columbus, Ohio, stressed that market fluctuations should have little to do with the decision to get an annuity.

“One of the common misconceptions about annuities is that there is a right or wrong time to purchase one,” he said. “In any economy, and at all stages of the financial life cycle, annuities can provide protection and guaranteed income, helping clients prepare to navigate adversity now and in the future.”

That doesn’t necessarily mean that annuities are right for every client.

Not A One-Size-Fits-All Solution
“Annuities are not a one-size-fits-all financial tool,” said Nepa. “There are many different types of annuities, plus diverse options, riders and features within those annuities that can be customized to an investor’s wants and needs.”

The wealth of options can make annuity selection challenging. “The first step is to see if the insurance protections provided by an annuity resonate with a client,” suggested Wade Pfau, professor of retirement income and director of the Retirement Income Certified Professional program at the American College of Financial Services in King of Prussia, Pa.

Bad Reputation
However, annuities don’t always have great reputations with advisors, some of whom dislike the products so much they will scarcely consider them.

“While statistics regularly report that the average American is woefully unprepared for retirement, very rarely is an annuity the answer,” said Russ Thornton, an advisor at Wealthcare for Women in Atlanta. “They’re expensive, complicated, and opaque [and] often leave consumers confused and not having a full comprehension of what they’ve committed to.”

Proponents are just as forceful in defending the products, however.

“You’re doing your clients a disservice by not bringing up annuities,” said Theodore Saade, a managing senior partner at Signature Estate & Investment Advisors in Los Angeles. “It’s become imperative to give clients an understanding that they can create a bucket of guaranteed income within their portfolio that normally wouldn’t exist outside of their Social Security.”

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