Bobby, please clarify “He’s right”.  Is “he” me or rankstocks.  Thanks.

[quote=anonymous]Bobby, please clarify "He's right".  Is "he" me or rankstocks.  Thanks.[/quote]

rankstocks.

To make a blanket statement that says Rankstocks is right or anonymous is right would be well, wrong.  Neither are techinically right. 

The IRS code change involves counting "additional benefits" into the Fair Market Value of a qualified annuity, from which the RMD is calculated.  Additional benefits could be death benefits or income riders that they consider in the money.  For example, I have some clients with $1000 contracts holding onto $50K in death benefit.  Their FMV goes up because of the DB.  Likewise does their RMD.  I don't remember it being a drastic adjustment, but it did adjust.  

There is an exclusion for the additional benefits if they are less than 20% of the account value and if they reduce proportionately for withdrawals.  Also if the DB is a return of premium only.

So, the FMV doesn't always go up, but the DB it isn't always excluded.  The income riders I would guess are so new and we've had such good markets that I wouldn't think they are impacting FMV yet. 

Clients and reps get letters at the end of the year telling the clients their FMV is going to be adjusted, so it's not a suprise.  But it is something to be aware of.   

[quote=Spaceman Spiff]

To make a blanket statement that says Rankstocks is right or anonymous is right would be well, wrong.  Neither are techinically right. 

The IRS code change involves counting "additional benefits" into the Fair Market Value of a qualified annuity, from which the RMD is calculated.  Additional benefits could be death benefits or income riders that they consider in the money.  For example, I have some clients with $1000 contracts holding onto $50K in death benefit.  Their FMV goes up because of the DB.  Likewise does their RMD.  I don't remember it being a drastic adjustment, but it did adjust.  

There is an exclusion for the additional benefits if they are less than 20% of the account value and if they reduce proportionately for withdrawals.  Also if the DB is a return of premium only.

So, the FMV doesn't always go up, but the DB it isn't always excluded.  The income riders I would guess are so new and we've had such good markets that I wouldn't think they are impacting FMV yet. 

Clients and reps get letters at the end of the year telling the clients their FMV is going to be adjusted, so it's not a suprise.  But it is something to be aware of.   

[/quote]

You're right.

Spaceman, thanks for the clear explanation.   It’s always great to learn something.

[quote=Spaceman Spiff]

To make a blanket statement that says Rankstocks is right or anonymous is right would be well, wrong.  Neither are techinically right. 

The IRS code change involves counting "additional benefits" into the Fair Market Value of a qualified annuity, from which the RMD is calculated.  Additional benefits could be death benefits or income riders that they consider in the money.  For example, I have some clients with $1000 contracts holding onto $50K in death benefit.  Their FMV goes up because of the DB.  Likewise does their RMD.  I don't remember it being a drastic adjustment, but it did adjust.  

There is an exclusion for the additional benefits if they are less than 20% of the account value and if they reduce proportionately for withdrawals.  Also if the DB is a return of premium only.

So, the FMV doesn't always go up, but the DB it isn't always excluded.  The income riders I would guess are so new and we've had such good markets that I wouldn't think they are impacting FMV yet. 

Clients and reps get letters at the end of the year telling the clients their FMV is going to be adjusted, so it's not a suprise.  But it is something to be aware of.   

[/quote]

It should be noted that when this kicks in, the discount factor that is used to calculate NPV of the benefit is so high, that the amount used to calculate RMD isn't much more than the contract value anyway.

I can't imagine a scenario where it would make a difference, but maybe that is simply because all of my VAs have contract values that are equal to the death benefit.

What I find interesting about this thread is that Rankstocks is calling this a disadvantage of VA's at the same time that he is saying that living benefits are smoke and mirrors.  It sure seems to me that if the situation occurred where the death benefit was much higher than the contract value, it would reason that the living benefits would be extremely valuable since they would also be much higher than the contract value.

Bingo!  It's easy to look at annuities over the last 5 years and say the DB and living benes are a waste of time and money.  Ask my dad about his Hartford annuity that he bought in 1999 when he retired and immediately started taking an income stream off of.  Nothing like three straight down years to screw up a good thing.  That sequence of returns brochure I have on my desk is starting to make sense to a lot of people.  It's also closing a lot of annuity business in my office.  Biz that I wasn't getting because people thought they were geniuses managing their old 401Ks and making money.  Monkey's picking mutual funds could have done the same thing over the last 5 years. 

[quote=Spaceman Spiff]

Bingo!  It's easy to look at annuities over the last 5 years and say the DB and living benes are a waste of time and money.  Ask my dad about his Hartford annuity that he bought in 1999 when he retired and immediately started taking an income stream off of.  Nothing like three straight down years to screw up a good thing.  That sequence of returns brochure I have on my desk is starting to make sense to a lot of people.  It's also closing a lot of annuity business in my office.  Biz that I wasn't getting because people thought they were geniuses managing their old 401Ks and making money.  Monkey's picking mutual funds could have done the same thing over the last 5 years. 

[/quote]

I keep a copy of a client statement nearby, with the name and contract number blacked out. It's quite a powerful closing tool to see what really has happened to a real account.

[quote=Bobby Hull][quote=Spaceman Spiff]

Bingo!  It's easy to look at annuities over the last 5 years and say the DB and living benes are a waste of time and money.  Ask my dad about his Hartford annuity that he bought in 1999 when he retired and immediately started taking an income stream off of.  Nothing like three straight down years to screw up a good thing.  That sequence of returns brochure I have on my desk is starting to make sense to a lot of people.  It's also closing a lot of annuity business in my office.  Biz that I wasn't getting because people thought they were geniuses managing their old 401Ks and making money.  Monkey's picking mutual funds could have done the same thing over the last 5 years. 

[/quote]

I keep a copy of a client statement nearby, with the name and contract number blacked out. It's quite a powerful closing tool to see what really has happened to a real account.

[/quote]

I do that also. That works very well.

Plus under my clear plastic desk botter I have the Franklin Funds piece (same size as the blotter) that shows the history of market sectors in a grid pattern.  It  is very graphically illustrative to bring up why people lost so much in the 2000 downturn.  Helps when we talk about asset allocation in the annuity or brokerage account.

I also have a sample portfolio analysis package from a real account with the name and account number blacked out to show what the depth of the analysis that is done on their account.  Lots of pretty graphs and the clients are impressed.  ooooh shiny.

Spiff is right.  I have one client who just cashed in an annuity they bought in early 2000.  It went immediately down and the agent did just what is being discussed here......nothing.  No servicing. No re-allocating into other sectors.  When I finally got the annuity in 2004 they were down almost 40%.  When they cashed it in they had a gain of about a thousand dollars.  If the contract had been offered with a GRIB the client would at least have had some gain to annuitize the contract.  Instead for their 7 years in this investment they would have been better off with the money in a passbook savings account.

[quote=babbling looney][quote=Bobby Hull][quote=Spaceman Spiff]

Bingo!  It's easy to look at annuities over the last 5 years and say the DB and living benes are a waste of time and money.  Ask my dad about his Hartford annuity that he bought in 1999 when he retired and immediately started taking an income stream off of.  Nothing like three straight down years to screw up a good thing.  That sequence of returns brochure I have on my desk is starting to make sense to a lot of people.  It's also closing a lot of annuity business in my office.  Biz that I wasn't getting because people thought they were geniuses managing their old 401Ks and making money.  Monkey's picking mutual funds could have done the same thing over the last 5 years. 

[/quote]

I keep a copy of a client statement nearby, with the name and contract number blacked out. It's quite a powerful closing tool to see what really has happened to a real account.

[/quote]

I do that also. That works very well.

Plus under my clear plastic desk botter I have the Franklin Funds piece (same size as the blotter) that shows the history of market sectors in a grid pattern.  It  is very graphically illustrative to bring up why people lost so much in the 2000 downturn.  Helps when we talk about asset allocation in the annuity or brokerage account.

I also have a sample portfolio analysis package from a real account with the name and account number blacked out to show what the depth of the analysis that is done on their account.  Lots of pretty graphs and the clients are impressed.  ooooh shiny.

Spiff is right.  I have one client who just cashed in an annuity they bought in early 2000.  It went immediately down and the agent did just what is being discussed here......nothing.  No servicing. No re-allocating into other sectors.  When I finally got the annuity in 2004 they were down almost 40%.  When they cashed it in they had a gain of about a thousand dollars.  If the contract had been offered with a GRIB the client would at least have had some gain to annuitize the contract.  Instead for their 7 years in this investment they would have been better off with the money in a passbook savings account.

[/quote]

Texas A&M did a study that proved that 99% of the time, investments that lose money would've been better off in a savings account.

[quote=Bobby Hull]

Texas A&M did a study that proved that 99% of the time, investments that lose money would’ve been better off in a savings account.

Good to know all those tuition dollars are being put to good work.  I'd rank that one up there with the group that released the study recently that says that cow farts are having more of an impact on the greenhouse effect than automobiles.  How does this planet survive without all those studies!?

Spiff, did you get the study from Skrainka? 

Texas A&M did a study that proved that 99% of the time, investments that lose money would've been better off in a savings account

This is true , but my point was that IF the annuity had contained the living benefit guarantees that some on this forum are poo pooing as being of no value, the client would have been way ahead of the game instead of back at square one after 7 years of being worried about their investment.

The other issue is that IF the original broker had taken the time to actually service the contract when the poo hit the fan, the client might also have been in a better position after 7 years.

[quote=babbling looney]

Texas A&M did a study that proved that 99% of the time, investments that lose money would've been better off in a savings account

This is true , but my point was that IF the annuity had contained the living benefit guarantees that some on this forum are poo pooing as being of no value, the client would have been way ahead of the game instead of back at square one after 7 years of being worried about their investment.

The other issue is that IF the original broker had taken the time to actually service the contract when the poo hit the fan, the client might also have been in a better position after 7 years.

[/quote]

You're so sexy when you get defensive.

You're so sexy when you get defensive."

BH- Babs is too classy for you bro. Stick to the trash on the South Side buddy- more your cup of tea...