Fixed Annuity Income Riders: The Goldilocks Syndrome

In regard to “GUARANTEED INCOME RIDERS”*, the explanations of how they work fall into the “Goldilocks Syndrome”. In some cases, not nearly enough information, in others, much too much!

Some authors feel the need to explain “actuarial reasoning”, others, do what typically inexperienced advisors do, “tell clients what they want to hear”. Too hot, too cold….. not “just right”! I am going to try to do just that, tell it like “Goldilocks” would!

The reason these riders were created was to enable clients to have “income they cannot outlive”, but not have to give up access to their cash. Immediate Annuities have been available for some time, and still have viability. They still do offer maximum guaranteed income, at a given age, and that benefit is unparalleled. But the loss of access, and future options, is a hardship, and typically what most people do not want.

What people do want, based on almost 30 years of financial advisor observation, is as much guaranteed income as possible, and still has access to their cash. Many people cite the possibility for change in their lives, or change in the outside environment, that would necessitate a change in their financial decisions.  This is where this “income rider” has the most applicability.

These riders come in many forms. I always evaluate the entire package that accompanies the rider, to see if the “rest of the story”, matches the client’s needs, and desires. The way the company credits the “market”, or cash account, total access to their deposit, surrender charges, and their schedules, viability of the carrier, and fees, are among the most critical components to be reviewed.

The products that offer these riders are numerous, and very different. Each company, and their various iterations of the concept, seeks to differentiate themselves from their competition. They do such a good job of this that this whole subject has become “fodder”, for the critics of the world. Because these products end up being very convoluted, and have so many moving parts, the critics dismiss one component or another, without evaluating the entire product package. Of course, that is what critics do! They very rarely evaluate the whole story; they just concentrate on the “part” that validates their criticism.

As a Financial Advisor that focuses primarily on the retired or soon to be retired client, in many cases, these riders offer the “Goldilocks” solution. I am an Investment Advisor Representative, and as such, can offer my clients a full spectrum of financial instruments, including securities. I find though, because of the fact that “guaranteed income”, is so critical, these riders play a pivotal role in my financial plans.

They are not perfect and have flaws, like every financial product in the market. Each client’s personal circumstances should ALWAYS be evaluated first, before any recommendation is made. But these riders, if thoroughly understood, should be a viable option to retired clients.

When advisors explain them wrong or inadequately, they fail their clients, as do advisors that summarily dismiss them for “actuarial reasons”.

All advisors should always follow the golden rule, “Do the right thing… Always!” Not just when it is convenient. Knowing the nuances of these riders, and being able to explain them completely, without confusion, is essential.

Most clients, and actually most people, want to know what time it is, not how the watch is made! The most important thing is that you have the correct time, and are able to explain it in such a way, that they understand, and believe you!

To learn more from this annuity professional, simply click here (Howard Hafetz).

About the Author:

Howard Hafetz, CLU, ChFC has been a Financial Advisor for 30 years. He started his career with American Express, and was initially trained as a Financial Planner in 1984, when the discipline of “financial planning” was just beginning. He earned his Chartered Life Underwriter, and Chartered Financial Consultant designations in 1987, from the American College, the oldest, and one of the most prestigious schools specializing in Financial Advisor designations. He currently holds series 6, 7, 22, 63, and 65 securities licensees, and the California Life, Health and Annuity license.

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