Invest a rollover!
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for fun-- please share an investment stategy for an avg 500k r/o invested for the avg 65 retiree in the 25% bracket who will not tap it for income in the foreseeable future and has a moderate risk tolerance, and hopes to have much of it to pass on if possible. Please do not attack the way the question is phrased; have not given it much thought.
I agree with Frank. I would put a large portion in VA and the remainder in laddered CD’s for emergency spending.
Married? Children? Life insurance in place? LTC policy in place? Why doesn’t he need income now? If working, how much current income? How is health? Any other retirement income sources (pension, part time work)? How much income does client feel he needs? How many obligations does client have? When (foreseeable future in no specific enough)is client needing income for the rollover? Is client charitable? Which is more important, comfortable retirement or legacy gift? This is some of the information needed to to answer your question.
[quote=BBQ]
VA would be about the last place I’d consider putting an IRA Rollover.
[/quote]Why?
[quote=BBQ]
VA would be about the last place I'd consider putting an IRA Rollover.
[/quote] Please do tell.I’ll tell,
How about: 1. 7 year surrender penalty 2. Limited investment choices 3. Average M&E expenses of 1.4% 4. Rider expenses averaging 0-1.5% 5. no access to CD's, individual bonds, individual stocks, money market, or any other investment other than the limited mutual fund choices allowed in the variable annuity. 6. considering the main reason annuities are justified is tax-deferred growth, buying a VA inside an IRA would be like putting two diapers on a baby. 7. Considering asset allocation is 90% of long-term investment success and this client has a significant time frame, the death benefit wouldn't be a good reason to buy a VA inside an IRA, especially since most VA hucksters flip these ever 5-7 years anyway. 8. Because the client will not be taking an income for the foreseeable future, a GMIB would not be a justification to buy a VA. 9. Increased regulatory scrutiny has made it extremely difficult to justify VA's inside IRA's, and regulators have touched just the tip of the iceburg on this one. If you want a couple more reasons, let me know.....I'll list them.oh well, I tried. OF COURSE I didn’t list every KYC particular. It’s just a friggin’ forum–have some fun
[quote=rankstocks]I’ll tell,
How about: 1. 7 year surrender penalty 2. Limited investment choices 3. Average M&E expenses of 1.4% 4. Rider expenses averaging 0-1.5% 5. no access to CD's, individual bonds, individual stocks, money market, or any other investment other than the limited mutual fund choices allowed in the variable annuity. 6. considering the main reason annuities are justified is tax-deferred growth, buying a VA inside an IRA would be like putting two diapers on a baby. 7. Considering asset allocation is 90% of long-term investment success and this client has a significant time frame, the death benefit wouldn't be a good reason to buy a VA inside an IRA, especially since most VA hucksters flip these ever 5-7 years anyway. 8. Because the client will not be taking an income for the foreseeable future, a GMIB would not be a justification to buy a VA. 9. Increased regulatory scrutiny has made it extremely difficult to justify VA's inside IRA's, and regulators have touched just the tip of the iceburg on this one. If you want a couple more reasons, let me know.....I'll list them. [/quote] Rank, these are the same reasons that most out of touch senior advisors in wirehouses give against annuities. Some of your points are just dead wrong. Annuities are actually having more inflow into tax-deferred accounts than non-qualified these days, and it's for the same reasons that they used to be shunned in qualified accounts: tax treatment is the same. The purpose for buying most of today's annuities is for the living benefit. I do hope you understand how these riders work, both tangible and intangible. I'm sure you haven't read any of Moshe Milevsky's reports or Ibbotson's studies. I have not had any trouble from regulators or compliance about putting a VA in an qualified account. On the topic of regulators and VA's, we had FINRA in our office checking up on things. The FINRA person asked, "Why would you do a 1035 exchange of this client's annuity? Why would you create a taxable event? This client might have a huge tax liability". Obviously the regulators don't know what they are talking about. Another point, people aren't buying annuities for the death benefit anymore either. Again, it's for the living benefits that I'm sure you know very well. And while we're on the subject, if you want to talk about costs, let's go for it. How much do you charge? Do you charge a fee and wrap mutual funds? A shares? C shares? If you add on the fund expenses and trading costs of the fund, you're easily at 2%. Depending on the sub-accounts you use in the annuity, you can easily keep ALL expenses at 3% max. So it's only 1% more for an insurance guarantee of income. Like Primo, I'd enjoy your other reasons. I'd also like to know how some advisors still think annuities are the same as they were in the 1990's. And how they are doing right by their clients by not staying updated on these changes.Met Life offers a product which (i could be wrong but i dont think so) is only offered thru the wirehouse i am associated with.
It is no surrender charge, period, wide choice of fund families, about 3 1.4% all in, and asset allocation models that are reblanced automatically. As i've stated before, i am not a big fan of VA's for everyone, being mindful of the high expenses. But there are situations in which they are totally appropriate, and as snags said, with the living benefits, that goes for qualified money as well as non qual. With no surrender, easy in easy out, it almost comes down to a simple question of what is the clients risk tolerance and is he willing to pay the extra 1-1.25% for insurance.[quote=pratoman]Met Life offers a product which (i could be wrong but i dont think so) is only offered thru the wirehouse i am associated with.
It is no surrender charge, period, wide choice of fund families, about 3 1.4% all in, and asset allocation models that are reblanced automatically. As i've stated before, i am not a big fan of VA's for everyone, being mindful of the high expenses. But there are situations in which they are totally appropriate, and as snags said, with the living benefits, that goes for qualified money as well as non qual. With no surrender, easy in easy out, it almost comes down to a simple question of what is the clients risk tolerance and is he willing to pay the extra 1-1.25% for insurance.[/quote]How much does it pay YOU?
Snaggletooth stated, “The purpose for buying most of today’s annuities is for the living benefit. I do hope you understand how these riders work, both tangible and intangible. I’m sure you haven’t read any of Moshe Milevsky’s reports or Ibbotson’s studies.”
An exerpt from Milevsky's key study "The Titanic Option; Valuation of the Guaranteed Minimum Death Benefit in Variable Annuities and Mutual Funds", by Milevsky, Moshe and Steven Posner, as published in the Journal of Risk and Insurance, 2001, Vol. 68. No. 1, 91-126, Professor Milevsky thoroughly demonstrates the cost solely associated with the mortality guarantee (GMDB) is typically less than 15 basis points. Therefore, while the GMDB is worth only 15 basis points or less, the Mortality and Expense charged by the insurance company (M&E) is usually greater than one hundred basis points and is invariant to factors which affect mortality risk." Also, which living benefit's are you talking about? GMIB, GMWB, or GMAB. All are different, all but the GMAB are smoke and mirrors. You have to Annuitize to capture the GMIB, and the GMIB annuitization tables used for this calculation are significantly worse than a lump sum immediate annuitization using cash. GMWB's usually are offered at 4-5% annually unless you are over 65 or 70, at which point the chances of your account value going to 0 is almost non-existant. After all, if we're using fear tactics to sell these annuities, keep in mind that these guarantees (which are smoke and mirrors) are only as good as the company backing them........Of course GMIB rates are lower than an immediate annuitization. Of course, immediate ann does not have a death benefit or the possiblility of rising income. That might be why. Oh yeah, income benefits do not require annuitization in most contracts unless you run the value to zero, which you stated the chance are small (or did you say non-existant). And you haven’t looked at annuities lately, 65 yr old is pulling 6% and a 70 yr old is getting 7%.
Here’s the conversation I envision from a snake oil, I mean annuity salesman.
"What if your account value at that other firm goes to 0? We're probably in the next great depression! I don't want to see you run out of money before you die. You've seen the stock market the last year, I think it could go to zero, don't you want to guarantee an income and your principal? Do you wan't your money insured, or uninsured? Let's cash out of that investment strategy you've got and buy this great variable annuity with all these guarantees. Don't worry, there's no commission because the insurance company pays me for finding them business. Let's not discuss costs, because their irrelevant anyway, after all your money is guaranteed, and so is this income at a guaranteed rate of 7% annually compounded. You can take plenty of income out of this annuity at anytime, just try and keep it below 10% for a few years. You might not hear from me again for a while (5-7 years), but when I do talk to you again, all these guarantees will be bad because there will me much better ones available then. I know the choices seem somewhat limited, and I know you wanted some bonds and CD's, but trust me, that doesn't matter with the guarantees." .....If the client only knew that the chances of them needing to use the GMIB's or GMWB's was actually smaller than the chances of the insurance company going out of business and not being able to honor those same guarantees.