Are annuities a good investment for your client?

With more investment choices than ever before, financial professionals are in a position to help clients sort out which options are truly in their best interest. This is especially true when it comes to long-standing products like annuities, which continue to spark debate about their value.

Many Americans do appreciate annuities for blending security with growth potential. But are annuities a good investment for everyone? It really is a case-by-case basis, and this article will delve into the nuances of annuities, discussing their benefits and potential downsides. Our goal is to equip you and your clients with the insights needed on how annuities can be used strategically within a diversified^* portfolio.

Helping your clients understand annuities

Annuities can be perplexing for investors, as they are complex financial products. An annuity is essentially a contract between an individual and an insurance company, involving a lump sum or series of payments in exchange for future income disbursements.

Annuities operate through the accumulation phase, where the contract value can grow, and the income phase, where regular payments are received. This structured income approach can provide clients with a steady source of funds during retirement, potentially addressing concerns about outliving savings. The promise of guaranteed^† lifetime income^‡ through an annuity with an add-on living benefit, available at an additional cost, can be particularly appealing for those seeking financial stability in their golden years.

The types of annuities we’re talking about here include fixed annuities, fixed index annuities, variable annuities and registered index-linked annuities (RILAs). These annuity products cater to a variety of financial goals and risk preferences.

Key features include tax-deferred growth,^§ which allows assets to potentially grow without immediate taxation, and the potential to provide guaranteed income for a set period or even for life. On top of that, many annuities provide flexible withdrawal options that can help meet changing client needs. For example, some allow a portion of the contract value to be withdrawn each year without penalty, while others let clients set up automatic withdrawals for steady cash flow or access funds when unexpected expenses arise. By understanding these features, as well as your client’s unique objectives, you can help them determine if an annuity would be a good fit.

Benefits of annuities

Annuities provide a range of features that are designed to help address certain retirement planning needs. Here are some key benefits your clients may be interested in, based on their unique goals. Plus, we’ll summarize each one with a simple way to talk to them about it.

Lifetime income:

Nobody likes that nagging fear of, “how long will my money last?” One of the key advantages of annuities is the potential for guaranteed lifetime income, which may help address that concern. With people living longer, reliable income becomes even more important. Fixed annuities, for instance, offer predictable returns that aren't tied to market performance. And with living benefits, available for an additional cost, clients can receive income they can't outlive—even if the account value goes to zero—helping provide a sense of stability and confidence during retirement.

Key talking point: Early retirement? Or already retired, and need to protect what you have? Want the option of a steady paycheck? Annuities that have income for life add-on benefits can help fill a variety of retirement planning gaps and help clients reach their lifestyle goals.

Tax-deferred growth potential:

Your clients want to keep as much of their earnings as possible, and avoid unintended tax consequences—which is why you can help them by aligning withdrawals and managing tax brackets. Unlike other non-qualified investment accounts, which may incur annual taxes on gains, annuities grow tax-deferred until funds are withdrawn. This allows the contract value to compound more effectively over time, helping to potentially build a larger retirement nest egg without immediate tax consequences.

Key talking point: While no one can predict the future, you can build a well-structured portfolio using a tax-aware strategy. Tax-deferred annuities can help create tax savings.

Protection against volatility:

The power of fixed annuities, RILAs and fixed index annuities lies in their ability to help clients manage exposure to market volatility within a portion of their portfolio. Fixed annuities provide stability through guaranteed rates, while RILAs offer growth potential with built-in buffers or floors that absorb part of market losses. Fixed index annuities also link interest crediting to an index but protect against negative returns. These products can help clients pursue growth elsewhere while maintaining protection where it matters most—an important balance in the early years of retirement or for conservative investors focused on preserving capital.

Key talking point: A strong plan doesn’t chase returns; it allocates resources with intention, prioritizing steady income and risk management, even in uncertain markets.

Legacy benefits:

Sometimes building the life your client wants in retirement means thinking beyond their own income needs and planning for what they'll leave behind. Add-on benefits^** like death benefits or guaranteed minimum accumulation benefits can help protect and grow assets for heirs, ensuring value is preserved even during market downturns. And once it's time for your client to pass on their legacy, it can go directly to their beneficiaries, tax-deferred.

Key talking point: With the proper add-on benefits, annuities can be an effective and tax-efficient way to provide for loved ones within your overall financial plan.

So, are annuities a good investment for your client? With the potential for guaranteed lifetime income and protection options from market fluctuations, annuities and retirement planning can go hand in hand. But it’s important to consider the downsides, too…

Potential drawbacks of annuities

While annuities can be a solid choice for many, it's crucial to weigh their potential drawbacks.

Liquidity

One key concern is liquidity. Annuities often have surrender charges for early withdrawals, limiting access to funds during financial emergencies. By carefully considering these charges and their impact, alongside your client’s overall financial plan, you can help them make informed decisions.

Key talking point: Financial professionals typically advise against any investment that would put a client in a vulnerable position, without enough cash on-hand for emergencies. Be sure to consider the overall financial position before purchasing an annuity.

Annuity terms

The complexity of annuity terms and conditions can also be daunting. Products often come with intricate rules regarding fees, penalties, and benefits, making it a challenge for investors to fully grasp what they’re getting into. Partnering with knowledgeable financial professionals can help navigate these complexities. We're here to help identify the needs within your clients' overall retirement plan, and explore if annuities are a good fit for their goals.

Key talking point: It’s generally not a good idea to invest in something you don’t understand. Investors should collaborate with an experienced financial professional to see if an annuity is a good idea for their specific situation.

Here at Jackson, we acknowledge these concerns and strive to offer transparent, straightforward annuity products. Our record, reputation and service speak for itself. Our team of wholesalers are here and ready to help educate you and your clients about annuities.

Who might consider annuities?

Annuities can play a valuable role for clients who want stability, income or protection options in retirement. Ideal clients generally include pre-retirees and/or retirees aiming to protect assets from market volatility while securing future cash flow. 

Risk tolerance plays a key role in determining if annuities are a suitable retirement product. Annuities offer protection options and varying levels of market exposure. Understanding your clients' comfort with market risk can help you determine which annuity type, if any, is appropriate for their needs.

Timing and financial circumstances also matter. Clients nearing retirement may prioritize predictable income through structured payout plans, while others may want options that allow continued market participation that support long-term growth. 

At Jackson, we understand each financial journey is unique. Our annuity products are designed to help provide flexibility and security, which could maximize an investment's potential.

Conclusion: Helping them make an informed decision

Every one of your clients' lives are meaningful. Priorities shift, but dreams rarely do. Once you’ve assessed an investor’s financial goals, risk tolerance and time horizon, you’re well-equipped to discuss annuity options with them.

Understanding fees and commissions associated with annuities is critical. Products may involve various charges, including surrender fees, management fees and mortality risk charges. Ensuring clients are aware of these costs helps them make informed decisions, choosing products that could maximize investment potential.

They trust you with the ins-and-outs of their financial future, and their shifting goals should always carry over to their overall plan. With Jackson, you can count on informative tools and resources as unique as your clients, to help you adapt and keep up with their ideal future in mind.

Consider sharing our tools and resources with them.

Determining if annuities are a good investment requires weighing benefits and drawbacks. Annuities can provide steady income, tax-deferred growth and protection against market volatility, making them a compelling option. However, potential downsides include fees, reduced liquidity and product complexity. Understanding these factors is crucial in deciding if an annuity aligns with financial goals.

As a financial professional, you can help assess current financial landscapes, clarify long-term objectives and determine if an annuity is the right fit for a given client. This personalized guidance empowers informed decisions aligning with specific needs and aspirations.