Old Annuities Carry Untapped Potential For Firms and Clients

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Annuity buyers saw a surge in payouts in 2022 and 2023 because of persistent Federal Reserve interest rate hikes. Now, after two years of cuts, economists believe rates could be back on the rise later this year owing to inflationary pressures stemming from the Iran war.

These shifting dynamics highlight why it's essential to reevaluate older annuities — helping ensure your clients continue to maximize their retirement income potential, no matter how the market evolves.

Annuities remain a foundational tool in retirement planning, offering stability and guaranteed income. However, they are not set-it-and-forget-it products. They require regular reviews to stay effective as economic and personal landscapes shift.

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Proactive annuity reviews help clients optimize their financial outcomes and position you as a trusted, client-focused professional who actively protects their wealth.

The case for annuity reevaluations

Changes in your clients' lives and the broader economy can directly impact the performance of their annuities. Shifts in financial markets alter the returns and advantages anticipated at the time of purchase.

As a financial professional, your responsibility is to help ensure clients' annuities continue to align with their evolving goals. To maintain the effectiveness of these products, you should conduct reviews every one to two years. This routine checkup helps guarantee that a client's coverage still fits their current circumstances.

About Adviser Intel

The author of this article is a participant in Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

Four triggers for annuity reevaluations

Several specific situations signal the need to look closely at an existing contract. Keep an eye out for these four primary triggers.

Changing interest rates: Rising rates create massive opportunities for clients with older annuities. If a client locked in an immediate annuity when rates were low, they might be stuck with lower payouts for life. Upgrading can help secure a significantly higher income (and generate revenue for you).
High inflation rates: Inflation erodes the buying power of fixed payouts. If a client secured a deferred income annuity to cover essential expenses, surging consumer prices may have diminished its value. Adjusting the annuity can help payments keep pace with rising costs.
Unnecessary riders: Riders provide extra protection but also increase costs. A client may have added a death benefit or long-term care rider years ago. As life changes, these once-valuable add-ons may no longer make sense. Removing them reduces fees and improves efficiency.
Life event changes: Major life shifts always warrant a review. Changes in marital status, employment, health or retirement income needs can alter financial objectives. Adjusting the annuity ensures it meets the client's new reality

Comprehensive annuity reviews

A proper annuity review goes much deeper than just analyzing performance and lifetime income payments. It requires a holistic look at the client's current life situation.

When conducting a comprehensive review, pay special attention to these critical areas:

Beneficiary designations: Do you need to update beneficiaries to match the client's current intentions?
Supplementary benefits: Are there unnecessary riders inflating fees? Are there new rider options that would provide better value?
Ownership structure: Is the current ownership structure still tax-efficient and logical?
Overall performance: How does the existing contract compare to new products on the market?

By asking these questions, you act as a proactive partner, guiding clients through complex financial decisions and helping ensure they remain in advantageous positions.

Real-world outcomes

To understand the impact of this process, consider how other financial professionals use annuity reevaluations to help increase growth.

Unlocking hidden value

One advisory firm we work with realized they had neglected back-book opportunities for far too long. To fix this, the owner hired a dedicated staff member to examine all business written over the past 15 years. This systematic approach quickly identified dozens of clients holding outdated contracts.

By upgrading these clients, the firm moved a significant amount of funds into better positions within just a few weeks. One client saw an increase in value after paying the surrender fee, translating to a monthly income boost. The firm increased its revenue significantly, while clients received life-changing income upgrades.

Balancing growth and service

Another financial professional capitalized on impending interest rate cuts by actively reviewing older contracts. Within a single month, he rewrote a large amount in annuity business, moving dozens of clients into positions that aligned with their goals.

He managed this while maintaining his active marketing routine, including educational workshops and seminars. By combining aggressive back-book reviews with front-end marketing, his firm surpassed its annual production goal months ahead of schedule.

Actionable takeaways

You can apply these exact strategies in your practice right now. Use these steps to help enhance client outcomes and grow your business.

1. Schedule regular reviews: Establish a strict routine for reviewing clients' annuities every 12 to 24 months. Make it a non-negotiable part of your annual client check-in process.

2. Invest in resources: Consider assigning a specific team member to pull customer relationship management data and review older contracts. Systematizing the process helps ensure no client falls through the cracks.

3. Educate and engage clients: Host workshops or send out short videos explaining how economic changes impact annuities. Educated clients are more likely to trust your recommendations when it is time to upgrade.

4. Prioritize client-centric solutions: Always present options that align with your clients' best interests. Even if it requires uncomfortable conversations about surrender fees, focus on the long-term mathematical benefit.

5. Stay proactive: Monitor economic trends constantly. When the Federal Reserve makes a move, be the first to call your clients and explain what it means for their retirement income.

The win-win of annuity reevaluations

Annuities are a highly strategic way to help secure steady income during retirement. However, the economic environment and your clients' lives never stop changing. By reviewing their annuity contracts now, you take a proactive step to confirm their retirement planning remains completely on track.

When you discover opportunities to adjust or exchange an annuity for a better option, everyone wins. Your clients can enjoy greater financial confidence and higher income, and you build a thriving, deeply trusted advisory practice.

Start looking at your back-book today. The hidden value waiting there might surprise you.

Advisors Excel's mission is simple yet profound: To help good advisers become great business owners while enabling their clients to enjoy the retirement of their dreams.

This content is for informational purposes only and is not intended as financial advice or advice designed to meet the needs of any particular situation. The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.

Investing involves risk, including the potential loss of principal. Any references to protection, safety or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the issuing carrier. Our firm is not affiliated with the U.S. government or any governmental agency. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 5358488 – 4/26

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Jake Klima has dedicated nearly two decades to the financial services industry, focusing on coaching elite financial advisers. In his leadership role at Advisors Excel, a market-leading financial services wholesaler, Jake partners with top-performing advisers to help them enhance their practices and build thriving businesses. Leading a coaching team of over 100 members, Jake emphasizes transforming advisory firms into scalable businesses that offer time freedom.