Advisors spend a great deal of time explaining the mechanics of annuities, but the real challenge often lies in addressing the emotional and psychological factors that influence client decisions. Many individuals resist annuities not because of their financial structure but because of ingrained biases and fears. By understanding behavioral finance principles, advisors can frame annuities in a way that resonates with clients on a deeper level.

1. The “Annuity Puzzle” – Why Clients Hesitate

Economists have long noted the “annuity puzzle”—the observation that even when an annuity is the mathematically optimal choice, many retirees avoid them. Why?

• Loss Aversion: Clients fear the pain of "giving up" a lump sum more than they value securing guaranteed income.
• Status Quo Bias: Many prefer familiar investment strategies and resist change.
• Hyperbolic Discounting: Clients prioritize immediate access to money over long-term benefits.

Advisor Tip: Reframe annuities as a way to transform assets into a predictable retirement paycheck like a personal pension.

2. Addressing Common Behavioral Biases

Clients often make decisions based on emotions rather than logic. Here’s how to counter the most prevalent biases:

• Anchoring Bias: Clients fixate on their total portfolio balance and struggle with reallocating funds to annuities.

Solution: Show how converting a portion of assets into an annuity creates a sustainable income stream without jeopardizing liquidity.

• Fear of Regret: Clients worry about making irreversible financial choices.

Solution: Offer annuities with flexible features such as partial withdrawals or step-up benefits to provide peace of mind.

Advisor Tip: Use real-world examples of clients who hesitated initially but benefited greatly from securing guaranteed income.

3. Framing Annuities as a Solution, Not a Product

Instead of explaining annuities in technical terms, position them as solutions to clients’ biggest financial concerns:

Concern: "I don’t want to run out of money in retirement." | Solution: "An annuity ensures you’ll receive guaranteed income for life, like a personal pension."

Concern: "I don’t want my money tied up." | Solution: "Some annuities allow for partial withdrawals and liquidity features, giving you flexibility."

Concern: "What if the market crashes?" | Solution: "Annuities offer downside protection while still allowing for market participation."

Advisor Tip: Lead with the emotional and lifestyle benefits of annuities before diving into product specifics.

4. Using Behavioral Finance to Encourage Smart Decisions

Incorporating behavioral finance principles into annuity discussions can drive better client engagement:

• Simplify Choices: Too many options can overwhelm clients. Present two or three well-matched annuity solutions.
• Use Social Proof: Share examples of retirees who are more confident in spending due to their guaranteed annuity income.
• Leverage Mental Accounting: Position annuities as a “protected income bucket” within their broader financial strategy.

Advisor Tip: Use interactive planning tools to visually illustrate how annuities provide stability and long-term security.

Final Thoughts: Turning Hesitation into Confidence

Understanding the behavioral side of annuities allows advisors to shift the conversation from numbers to client peace of mind. By addressing emotional biases, framing annuities as lifestyle solutions, and using behavioral finance insights, you can help clients move past hesitation and embrace financial security.

At New York Life, we make annuities easier—helping you connect with clients in meaningful ways that drive smart financial decisions.

SMRU 7586145; Expiration 02.03.2028