Positioning Annuities

[jmarkk1]

When it comes to strategies, what are the best uses for annuities?...compared to what can be done with short and long term bonds and other security based investments
Please give specific ideas...
I've got a client looking to scale back from the market and they also have had really bad view of insurance based products because they were burned once by variable annuity. Client is 64....looking to put money from market and put in bank and shift to short term bonds

 

[Stephen]

I have an FA that I work cases like this with for a couple of reasons. First, if his money is in securities you could have a source of funds issue, he also needs to have the differences explained between a VA and strictly insurance products.

It is much easier to close deals moving a portion of assets in an annuity as a piece of the financial plan, versus going for the whole enchilada.

 

[Full Throttle]

When it comes to strategies, what are the best uses for annuities?...compared to what can be done with short and long term bonds and other security based investments
Please give specific ideas...
I've got a client looking to scale back from the market and they also have had really bad view of insurance based products because they were burned once by variable annuity. Client is 64....looking to put money from market and put in bank and shift to short term bonds

There's a winning strategy, move to bonds that will go down if interest rates rise. Short duration or not, bond prices are impacted by interest rates. Ask him if he expects interest rates to go up, he will likely say yes.

I would probably position it one of two ways:

1. A low interest rate fixed annuity with a ROP feature. The yield is bad, ANICO off the top of my head pays out around 1.1% right now for their 5 year. The principle is protected regardless of interest rate moves. If rates go up, so should his renewal rate as well. It's better than a CD and probably the same or better than the other alternative considering fund expenses. If not, it's because he is taking more credit or duration risk.

If rates go up mildly, he could pull out the 10% free withdrawl amount and put it in something with a higher rate if available. If rates go up fast, he could take the ROP feature, forfeit the interest gains, but invest the amount in a higher yielding program if the numbers work out. If rates stay the same, he is getting what the market will pay with principle protection.

2. Or, just go find the highest 5 year MYGA and call it a day. Possibly a combination of #1 and #2.

 

[jmarkk1]

His issue is that he was burned by VA in the past and can't seem to look at a fixed annuity without thinking the same bad things will happen
In regards to bonds and interest rates, can you explain how interest rates will affect short term bonds? How an annuity can protect them from this?
Also, he seems to not be troubled at all with taxes...he could care less about deferral

 

[sman]

His issue is that he was burned by VA in the past and can't seem to look at a fixed annuity without thinking the same bad things will happen
In regards to bonds and interest rates, can you explain how interest rates will affect short term bonds? How an annuity can protect them from this?
Also, he seems to not be troubled at all with taxes...he could care less about deferral

Bonds have an inverse relationship with interest rates. If interest rates go up, bond values go down. If interest rates go down, bond values go up. Of course, if he were to buy bonds (not a bond mutual fund) he would continue to receive the declared rate on the bond and the fluctuation in the underlying value won't matter.

Personally, buying bond funds (mutual fund - not the actual bond) right now for a short term investment isn't a very good strategy. That's my personal opinion. Rates have nowhere to go but up.

As for annuities, if you aren't well versed in the various types, you may want to bring in a more experienced agent. You may never overcome his perception of annuities because of his prior experience. If his goal is asset protection, a MYGA or a FIA would fit the bill. If his goal is to provide an income, then a FIA, VA or SPIA might do the trick.

Lastly, and don't take this the wrong way, if you can't explain the difference between a fixed annuity and a variable annuity to overcome his concerns then you definitely need another agent to assist.

 

[jmarkk1]

Can you comment on how to talk someone through the issue of tax deferral...they are more worried about tax deferral vs paying now. They think they'll owe more if taxes deferred because they think taxes will go up.
Also, how does high interest rates affect this scenario of higher taxes?

 

[nathan.lee]

Can you comment on how to talk someone through the issue of tax deferral...they are more worried about tax deferral vs paying now. They think they'll owe more if taxes deferred because they think taxes will go up.
Also, how does high interest rates affect this scenario of higher taxes?

SMAN,

Are you licensed in Ohio? Sounds like JMARKK1 could use some help and the two of you could split the case.

 

[sman]

SMAN,

Are you licensed in Ohio? Sounds like JMARKK1 could use some help and the two of you could split the case.

No I'm not. But surely he knows someone who is. At the very least he could contact one of his FMO's and ask for a few agents in his area that he could interview.

 

[Tahoe Ray]

No I'm not. But surely he knows someone who is. At the very least he could contact one of his FMO's and ask for a few agents in his area that he could interview.

I have a couple of registered reps in Ohio that I could put you in touch with...OP, you can PM me if you want to discuss further.