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Sep 18, 2008 10:07 am
I agree, for younger clients that want income right away, I would probably have to go with the GMIB.  Btw, I did run some numbers across the board and it seems that SPIAs would beat the GMIB payout in worst case scenarios and realistic case scenarios. However in extreme bullish markets (and I say this because performance has to be so aggressive that it beats out the fees and still comes on top 10-15%), the GMIB would be better for younger clients that take income right away. Why not then just buy a fixed annuity instead of a GMAB and then exchange it for a SPIA when the client is ready to take income?   If a younger client wants income right away, I am using neither a SPIA nor a VA.    GMAB riders limit the VA into very conservative models, therefore killing ANY upside potential. Buy a fixed annuity for 5% and then exchange it for a SPIA to begin an income stream? Thanks for the talk anon, I really appreciate it.   You're welcome.  I'm always glad to have these talks.  GMAB riders don't limit the VA into very conservative models.  Find a different VA.  What's better...the fixed annuity paying X% or the GMAB that guarantees 0%?  We can only use hindsite or ask the client.  With a 10 year + time horizon, personally, I'd rather see the client use the GMAB.  The worst case scenario isn't that much worse, but the best case scenario is much better. 
Sep 18, 2008 1:20 pm

[quote=anonymous]

I agree, for younger clients that want income right away, I would probably have to go with the GMIB.  Btw, I did run some numbers across the board and it seems that SPIAs would beat the GMIB payout in worst case scenarios and realistic case scenarios. However in extreme bullish markets (and I say this because performance has to be so aggressive that it beats out the fees and still comes on top 10-15%), the GMIB would be better for younger clients that take income right away. Why not then just buy a fixed annuity instead of a GMAB and then exchange it for a SPIA when the client is ready to take income?   If a younger client wants income right away, I am using neither a SPIA nor a VA.    GMAB riders limit the VA into very conservative models, therefore killing ANY upside potential. Buy a fixed annuity for 5% and then exchange it for a SPIA to begin an income stream? Thanks for the talk anon, I really appreciate it.   You're welcome.  I'm always glad to have these talks.  GMAB riders don't limit the VA into very conservative models.  Find a different VA.  What's better...the fixed annuity paying X% or the GMAB that guarantees 0%?  We can only use hindsite or ask the client.  With a 10 year + time horizon, personally, I'd rather see the client use the GMAB.  The worst case scenario isn't that much worse, but the best case scenario is much better.  [/quote]   Sorry, by younger I meant in younger in the VA world (which is 60). What would you say is around a good fee that allows upside potential but a decent guarantee?
Sep 18, 2008 10:11 pm

The lower the better, but it's not so much about the exact fee.  It's more of a question as to whether having the guarantees will allow someone to invest more aggressively and get a greater return than they otherwise would get.

Ex. Joe is 60 and needs an 8% return to achieve his goal of retiring at age 70.  He is conservative and is not willing to take investment risk.   If Joe invests according to his risk tolerance, he won't achieve his financial goal.  The guarantee of the VA will allow him to invest aggressively, and more importantly, stay invested aggressively.  He may not reach his goal, but he at least has a chance.    Will the return of the VA less the fees equal what the client would get if they invested without the guarantees?  We don't know, but it's often worth the risk if the client is ok with the worse case scenario.  When a VA is used for accumulation, the worst case scenario should be the equivalent of about a 3% return with a GMIB and 0% for a GMAB.  This is pretty good for worst case.
Sep 19, 2008 2:02 pm

Back to my ORIGINAL argument BEFORE the AIG crisis: If your mutual funds which comprise of thousands of diversified equity holdings go down the drain, would you want to bet that ONE financial firm (an insurance company) will still be around to have their claim-paying abilities?

  Would you rather have governmment insurance versus business insurance? "But oh...the account value will still be there because they're in separate accounts" What's the point of charging your client those extra fees for all those years?   P.S genworth isn't looking too hot right now either.
Sep 19, 2008 8:53 pm

And how would the government insurance help me if all of my mutual funds go down the drain?  You must have missed the talking heads discussing FDIC and that if there are enough banks that go under, FDIC goes right along with them.  There isn’t a government agency out there that could handle a catastrophic banking failure.  If this country gets to that point, funds, CDs, VAs, insurance, etc will all be a moot point.  The question is do you know how to hunt or fish or grow veggies?   

Sep 20, 2008 12:46 am

Back to my ORIGINAL argument BEFORE the AIG crisis: If your mutual funds which comprise of thousands of diversified equity holdings go down the drain, would you want to bet that ONE financial firm (an insurance company) will still be around to have their claim-paying abilities?

 Would you rather have governmment insurance versus business insurance? "But oh...the account value will still be there because they're in separate accounts" What's the point of charging your client those extra fees for all those years?   Chris, let me apologize in advance because this is the 2nd post in a row that I'll be ripping into you on this subject.    If this is your original argument, you don't understand the concept of the guarantees.  If everything goes down the toilet, like Spaceman said, everything goes down the toilet.  It doesn't matter how much one paid in fees.   What if we use a more realistic scenario?  Things don't go down the drain.  They just aren't so hot for the next 10 years and we wake up with the S&P down 10% lower than it is today.  The guarantees will get used and the insurance companies will be able to make good on them.    What if we use a different scenario?  The next 10 years are really good and the VA investors average 10%.  Might these VA holders benefit from the guarantees if they wouldn't have invested aggressively without them?   What about all of the people who sell their investments when the market falls, but don't sell if they have the guarantee to rely on... and the market bounces back?   The guarantee is not used to protect against the end of the world.  It's used to improve investor behavior.
Sep 20, 2008 12:59 am

Anon, I agree with you again.  It appears as if Chris is stuck on fees so much he can’t see the forest through the fees.

  A little bit of knowledge can do a lot of damage.