Variable Annuity for income

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buyandhold's picture
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Joined: 2008-09-23

I've been running variable annuity illustrations, showing 'income' coming out -- 5 to 6 percent, depending on the client's age -- and it seems that all of them within about 10 years are seriously underwater, so that all you've got left is the income guarantee.So wouldn't it just be better to use an immediate annuity and get higher income?It seems that if you're pulling 5 or 6 percent from a 70-30 mix (most annuities won't let you go all stocks) and paying 3 percent in various fees and charges, there is no way to avoid going to zero if there are a couple of big negative years in there.I know people are selling these -- and I'm willing to sell them, too, if the client wants them -- but I can't seem to summon the certainty to sell them.

anonymous's picture
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Joined: 2005-09-29

I agree with you.  If the primary goal is income, I think that a VA is not the way to go.  The fees combined with taking lots of income make it a very real possibility that there won't be any growth and the client, in hindsite, would have been better with many other options.
 
I like VAs, but almost exclusively, the following must hold true:
 
1)The money must be qualified.
2)The guarantees allows someone to invest above their tolerance for risk.
3)The client can't be looking for current income.

LockEDJ's picture
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Joined: 2009-07-06

Have you considered Lincoln's I4Life rider? It enables the client to take principle as well as earnings, thus increasing not only their total income but their total net income in situations where you might be doing a 1035 exchange.

Jebediah's picture
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Joined: 2009-07-10

LockEDJ wrote:Have you considered Lincoln's I4Life rider? It enables the client to take principle as well as earnings, thus increasing not only their total income but their total net income in situations where you might be doing a 1035 exchange.

 
 
I think you are confused about what the i4life does.  i4life works like most other income riders with one difference, the IRS considers withdrawals to be an annuitized payment, therefore some principal, some earnings. This is opposed to earnings first in other annuities.  This will increase the net due to tax treatment, but has nothing to do with the gross.  One caveat, you better like the i4life contract for life, because you can't 1035 it. 

ChrisVarick's picture
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Joined: 2008-09-04

Anonymous,
 
Why VAs for exclusively qualified money?

deekay's picture
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Joined: 2007-05-15

That, and all W/D's from qualified money are taxed at ordinary income.  So from that standpoint, the investment vehicle really doesn't matter. 

ChrisVarick's picture
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Joined: 2008-09-04

When someone inside a NQ annuity dies, does the ENTIRE amount pass on to the beneficiaries as income? or just the gains from the basis?

snaggletooth's picture
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Joined: 2007-07-13

ChrisVarick wrote:When someone inside a NQ annuity dies, does the ENTIRE amount pass on to the beneficiaries as income? or just the gains from the basis?
 
Didn't you say in a previous post in the other thread you worked as an annuity product consultant prior to going into production?  Wouldn't you have learned this while in that capacity? 

ChrisVarick's picture
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Joined: 2008-09-04

Our firm had strict guidelines for us to conference in advanced planners for each and every single taxation question (no matter how simple it was). I probably should've paid more attention while they were on the line. That was my fault. What's the answer?

ExPropTrader's picture
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Joined: 2006-11-19

If your B/D will allow it there are some great withdrawal riders you can attach to FIA's at a much lower cost and higher withdrawals, as well as higher rollups, in addition you still have a walkaway value from the index side that can never decrease should the client all of a sudden decide they want cash

Cash-22's picture
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Joined: 2008-12-19

ChrisVarick wrote:When someone inside a NQ annuity dies, does the ENTIRE amount pass on to the beneficiaries as income? or just the gains from the basis?Depends on the death benefit. Traditional DB will give the beneficiary the remaining cash value less any fees and of course taxes.  Some DB with riders preserve the guaranteed amount so the beneficiary can take the income stream, again less taxes.

ManOnTheCouch's picture
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Joined: 2009-02-03

VA's for income is a horrible idea.  They are very expensive due to the insurance you're buying, and the majority of the underlying subaccounts are for growth rather than income.  It's a high price to pay for insurance.  The better idea was mentioned using a combination of laddered fixed income vehicles and SPIA's.  No limit to the combinations you can come up with for an individual situation using bonds, fixed annuities, indexed annuities and even growth securities once income has been laddered out for a long enough period of time. 
 
VA's will normally fall short because they struggle to serve two masters - stock market growth and insured income.  Use products that focus on only one of these, and you'll be far ahead.

WarRoom's picture
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Joined: 2009-10-25

VA are great when you buy during the bear bad when you buy during the bull.  I like the ones that are RMD friendly and pop 10% if the client goes into a nursing home.

curly's picture
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Joined: 2009-11-24

WarRoom wrote: VA are great when you buy during the bear bad when you buy during the bull.  I like the ones that are RMD friendly and pop 10% if the client goes into a nursing home.

No, basically VA annuities are good for one thing. to provide small brokers like yourself the chance to make a 5 % commission to end off the month when you don't have the assets to support a real business. Why do you think all the VA tickets are done towards the end of the month. b/c you losers need to hit you nut to survive and little dogsh*t unit trust won't cut it. You know it, the clients know it and your firm knows it

KensLoveChild's picture
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Joined: 2009-03-11

It's 7% thankyouverymuch.

deekay's picture
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Joined: 2007-05-15

curly, I am very intreigued by your 'Variable Annuity annuities' and would like to subscribe to your newsletter.

newnew's picture
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Joined: 2007-02-23

How about: client has no other pension so wants the 6% forever, his kids are rich and so he doesn't care about that, and he's well aware of the 3% cost and the fact that it could go to zero eventually but it's better than giving up the princ today with the SPIA. Then he gets the VA choice. 

anonymous's picture
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Joined: 2005-09-29

newnew wrote:How about: client has no other pension so wants the 6% forever, his kids are rich and so he doesn't care about that, and he's well aware of the 3% cost and the fact that it could go to zero eventually but it's better than giving up the princ today with the SPIA. Then he gets the VA choice. 

 
If he takes 6% forever, the 3% cost will almost certainly cause it to go to zero.  In most cases, all that he will accomplish with this type of strategy is to get less income than he would have gotten with a different strategy.
 
One thing to keep in mind with the guarantees of VAs is that the greater the guarantee, the greater the chance that all that the person will get is the guarantee.

nonews's picture
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Joined: 2009-12-09

There is a time and a place for everything, including VA's. What is wrong with Prudential's VA? Guaranteed 200% after 10 years, 400% after 20 yrs and 600% after 25 years for income purposes (regardless of market conditions). You take someone in their mid 40's to mid 50's, they are a great fit for this type of product. Just a portion of their portfolio of course. Heck, PRU even offers 100 percent of your principal back regardless of mkt conditions after 7 years. Can a Mutual fund do that? No.
Remember, it's all about client's objectives. these VA's need to be viewed as an INCOME producing account. Not a cash account. Income producing account.
 
Curly- based on your post, YOU are indeed the loser.

nonews's picture
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Joined: 2009-12-09

UIT's are paying 330 bps w/ Claymore. I don't think that's dogcrap. That's pretty dang good. Besides, in many cases, when an annuitant is 80 or older, the annuity pays far less than a UIT. and btw, UIT's arent cheap to the client either. Pretty high fees and charges for a 2-3 year term. date. Then just to do it over again, with really no guarantee of principal. Different folks different strokes.

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