[quote=scrim67]

the guarantees are covered in the M&E?

The contracts I've seen that have a GMIB usually cost around 40-60 basis points and I was always under the impression it was a separate fee.

Can any experts clarify as VA's are self admittedly not my forte?

scrim

[/quote]

Scrim, Most living benefits GMIB / GMWB are add on features which is an additional cost.

[quote=babbling looney]

Yes it is possible.   ING has an annuity that has a guaranteed 7% annual compounded living benefit.  Yes, you have to wait 10 years and must annuitize to receive the benefit.  But as long as the client is aware of these conditions, aware that they are paying for this benefit and hasn't put all of their money in the account, I don't see an issue.

If the contract market performance is greater than 7% annually (which we hope will happen) then they don't have to annuitize they can take the market value and withdraw as they see fit.  If the market performance is less, then the client is guaranteed an income stream on his higher 7% return.

This seems like a good safety net to me.

[/quote]

Amen Mama.

Indy, 

 I Dont know of any VA that will will double the money in 10 yrs AS A LUMP SUM W/D OPTION. Would love to get a rollover from a 50 y.o and in a worst case scenario give them double what they put in at 60.  

Babbling Looney lets see

 Retire at 65,Start contract ,wait 10 yrs .then start w/d . Will more than likely be DEAD BY THE TIME i REALIZE BENEFITS. Oh and forget beneficary, I annuitized so death benefit ( depending on which option I take) can be ZERO.

How does this help the client and beneficiaries?

[quote=scrim67]

"At that point, it really doesn't matter if you or I think that the investment being liquidated was the best choice for the client...the best choice is the one that they'll keep"

Indy,

I respectfully disagree with you on this one.

If this was true, I'd put clients into the investments they perceive as the most safe.    Their accounts would probably only grow around 5% annually before taxes.   I would probably never lose the accounts though!

scrim

[/quote]

Nah, I'd come in and show them why 5% sucks and take your client.  Inflation plus taxation makes 5% almost nothing.  (unless we are talking tax free muni's)  Not selling performance, but selling risk tolerance and the general nature of the stock market over the past 70+ years.  I even show them my account and how I invest.

[quote=waterboy]

Babbling Looney lets see

 Retire at 65,Start contract ,wait 10 yrs .then start w/d . Will more than likely be DEAD BY THE TIME i REALIZE BENEFITS. Oh and forget beneficary, I annuitized so death benefit ( depending on which option I take) can be ZERO.

How does this help the client and beneficiaries?

[/quote]

Personally, I use annuities to protect assets, defer taxes, or for the death benefit properties.  I typically don't tie up money that may be needed in them.  However, I do use some of the bonus products as a way for a select group of clients who are self-employed to have a nice "pension-like" product that matches a portion of their contributions, as long as they are maxing out their other retirement vehicles.

[quote=waterboy]

Babbling Looney lets see

 Retire at 65,Start contract ,wait 10 yrs .then start w/d . Will more than likely be DEAD BY THE TIME i REALIZE BENEFITS. Oh and forget beneficary, I annuitized so death benefit ( depending on which option I take) can be ZERO.

How does this help the client and beneficiaries?

[/quote]

First of all I said as long as you don't put everything into the annuity. Of course you need to have some liquidity. DOH. And as Indyone said you need to address each client's individual needs. In your scenario I wouldn't touch a 10 year annuity with a 10 foot pole.

Ok.... here is a real life scenario from one of my clients.  Retiree at 57, sold one of his businesses. Has a 480K profit sharing plan roll out. All cash.  Doesn't plan to draw IRA income for at least 8 to 10 years. Has other passive income for now. Divorced and his kids are well off.  He doesn't plan to scrimp and leave a legacy for the kids. 

I put 175K in a moderate to mildly aggressive mutual fund portfolio, 175K into 7% compounding annuity in aggressive sub-accounts. The rest 180K into various REITS and short term bonds for now. 

Worst case scenario the 175K in the mutual funds goes to ZERO (hardly likely), guess what?? he will still have 300K in 10 years when he might want to begin to draw an income. 

Best case scenario, we get an average return on the mutual funds of 10 to 12% and because the annuity does have those nasty expenses, we only get a 8 to 10% return.  The bond and REIT portfolio is flexible and we can move with interest rates or other market changes.    Since we all know that past performance is not indicative of future yada yada yada., we can't guarantee anything on the entire portfolio. But we can on the annuity.

So to be conservative in our projections: over 10 years the entire ball of wax gets 8% annual return.  Future value 1.036 M.

I don't know if this helps his beneficaries but it sure helps him.

Oh, yeah and if he dies before 10 years his beneficaries do get a stepped up death benefit on the annuity. Quartely ratcheted to the highest value.

Nice trade Looney

I NEVER sold an EVIL VA the first 2 years out.  Once I understood them better, though, I had no problem using them for a portion of a client portfolio.  AND I"M SELLING STUPID A-SHARE VA's!! 

As a matter of fact, I am currently putting my mother-in-law in one for the income.

babbling’s example above is one of many where the 10 yr worst case aint all that bad (for a worst case).  In the case where there are other pots of $ to draw from in the mean time, I treat this like a 7%/yr bond.

Uh oh.  We've got a huge problem here.  It sure seems that none of you understand the GMIB rider.  You are selling the product in a way that is dishonest for the client. 

Here's a quiz.  What is higher--a 5% GMIB or a 7% GMIB?  What is the true value of a 7% GMIB? 

The rates are bullsh*t!  Why?  All of the insurance companies use either an age setback or lower annuitization rates in conjunction with their GMIB riders. 

Quiz answer:  They are around the same.  Both tend to be around 3%.  What this means is that if the account grows at 4% and the client wants to annuitize the contract the GMIB feature is useless because they will get more money by buying a SPIA using the insurance companies SPIA rates instead of taking the 7% and using the annuitization rates offered with the GMIB contract.

The GMIB is a good feature, but never tell the client that they will get a minimum % return in exchange for annuitizing the contract.  If you want to sell it honestly, say, "Invest X dollars and after Y Years, the insurance company will give you a lifetime income of $Z/month for the rest of your life.

Read the contract!  It is not in the insurance company's interest to explain how the contract actually works.

Has anyone ever actually read the contract???

Example for anyone who doubts me and wants to run the numbers:

50 year old invests $100,000.  Investments earn 4% over the next ten years.  Account value at age 60 equals $148,000.  How much will this pay for a SPIA?  If GMIB option is taken, the value becomes $196,000.  How much will this pay using the GMIB annuity rates?  Use the rates from any company that has a 7% GMIB and you'll see that the $148,000 will pay more than the $196,000!

?  What are you, an actuary?  That is interesting, and if true, news to me.  No, I’ve never read the whole contract.  Maybe I’ll check the #s to see if it plays out that way…if you have quick #s, what do the monthly or annual payments in your above example come out to??

PS Scrim, if you can verify anonymous’s explanation above, you will smoke whoever is trying to use this solution w/your client, because it blows apart the whole argument for using the product (along with MY logic for considering it!).

anonymous,

    Excellent point.  I was reading through this thread, and before I could beat you to the punch, you very elequently explained the BS surrounding the GMIB.  This is a SCAM brokers use to sell annuities to unsuspecting clients.  I've run across more people than I can count that think the GMIB is a GUARANTEED rate of return, no matter what their underlying investments do.  When I explain the truth, they are PISSED.  Two different clients filed complaints after I pointed the lies their broker told them about the GMIB and both got their money back.

    I have NEVER run across ONE PERSON this type of annuity was sold to that truly understands that the GMIB must be annuitized, let alone the fact that the insurance company sets the true rate.  The posts on this thread prove the me that we have uneducated neophites pitching these products without a basic knowledge of what they are selling.

I think the point of the GMIB is that you do not have to annuitize the annuity in order to draw an income for life, and can stop taking it and pull out the cash value of the account at any time.

Like annuitization, in a SPIA, you're stuck and have no future options with that either, and leave no legacy for the kids.

The VA w/ a GMIB rider seems to offer a win-win for the client that doesn't want you to take away his asset (ie. SPIA or annuitization) but can give him the option to start/stop an income stream at any point in the contract without having to make a permanent decision on taking that income.

anonymous - your example is flawed in that you're assuming that VA is will never outperform that 5%/yr thereby never taking advantage of a stepup feature (which helps them lock in gains and increase their income for life... something that's not going to happen with a SPIA or annuitization where payments are fixed for life based on actuarial tables). 

Also, you assume that VA's cash value is going to goto $0 and have no other benefit of than the 5% guarantee for life.  Sure, that's a worst case scenario, but the chances of that are slim and none (and if a VA's value actually did that while a client was pulling out 5% annually, I'd hate to see what their mutual fund portfolio did... probably $0 as well, and no GMIB there).  These companies can offer that 5% for life very safely considering that most subaccounts are going to do well beyond that 5% return on the long-term.  If they happen to have a few bad years in a row and the account takes a beating, they know the client is then essentially stuck because they have the 5%/life to hang onto and in the meantime the subaccount will hopefully rebound and get them back where they need to be anyway. 

STL Indy, it sounds as if you have no idea what a GMIB is.  You are confusing it with a GWIB.

For the record, I don't have a problem with a GMIB rider and I believe that it is appropriate at times.  My problem is that the insurance company's are dishonest by calling it 7%.  The agents are at fault for selling something that they don't understand.

Don't learn on your clients.  Learn for your clients.  If you are learning about products from wholesalers and marketing pieces, your clients are in trouble.  Read the actual contracts!

Oops, I meant GMWB. STL Indy is talking about a guaranteed minimum withdrawal benefit and not a guaranteed minimum income benefit.

Whether Anonymous is 100% accurate (which I believe he's pretty close), 0% accurate, or somewhere in between; this thread only reinforces why I tend to shy away from using these insurance products.

If some of us professionals don't fully grasp all the nuances of a VA, I'm sure not many clients truly understand either.

scrim

Scrim, instead of shying away, stop being a lazy advisor.  VA's are a very powerful investment tool in the hand of the appropriate investor.  You owe it to yourself and your client to take the time to learn how these products work.

I'm calling you lazy because I'm willing to bet that you have never read the actual contract.