Insurance sales: annuity ladderingArticle added by Dan Viñal on December 15, 2011
Dan Vinal

Dan Viñal

Joined: May 02, 2007

Annuity laddering is a proven method of using guaranteed fixed rate annuity contracts to protect your client's savings, income and lifestyle from inflation ... and without sacrificing their liquidity options.

If you're not familiar with the concept of annuity laddering, you should be. Laddered annuities balance both guarantees and liquidity with inflation protection, all of which are highly sought objectives by almost every retiree, right? What's more, you can earn multiple commissions for yourself, while optimizing your client's retirement income.

Inflation is the critical factor

According to the U.S. Consumer Price Index, over the 20-year period from 1990 to 2010, the U.S. dollar lost 40 percent of it's value through inflation. So for those people who had retired in 1990 (more than 20 years ago) with a monthly income of $5,000, that same $5,000 income would now purchase less than $3,000 in today's economy. For most people, this would require a substantial change in their lifestyle like cutting back on recreational activities, traveling or dining out – many of the things that make retirement enjoyable.

And if we assume that the average rate of inflation over the past 20 years will continue through the next 20 years, your client's retirement income will need to increase by almost 66 percent — an average of 3.28 percent each year — just to keep pace with inflation.

That's why laddered annuities can be so easy to sell when presented correctly and when your prospect actually understands how the process works. Annuity laddering is a proven method of using guaranteed fixed rate annuity contracts to protect your client's savings, income and lifestyle from inflation ... and without sacrificing their liquidity options. It's a sensible, appealing strategy to maximize your client's income over 20 or 30 years of retirement without the risk of losing the value of their income to inflation.

The statistical evidence

In fact, a recently published study by the Income Management Strategies division of the Mass Mutual Financial Group compared several retirement income strategies using 40 years of historical data. The research showed that fixed rate annuity laddering consistently delivered more income than any combination of stocks and bonds — both under various economic conditions and over various life expectancies as well.

Here's how it works

You begin by dividing your clients retirement savings into three, four or even five separate contracts — each one with an interest rate payout guaranteed for three, five or even 10 years.

Each contract also includes the option to either renew at the end of each term for another three, five or 10 year period, or to convert from an interest only payout to a higher interest and principal annuitized payout. So if interest rates go up, your client can renew at higher interest — and their income can go up too. But if interest rates go down, your client can annuitize the contract and their income can still go up.
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