Age 100 maturity NQ annuity

[Allen Trent]

Rarely seen good problem to have, but have any of you seen any carriers extend maturity past age 100? Or hear of any industry talk to pursue allowing maturity past age 100 as has become the case with many life products to age 120?

For the 3rd time in 5 years, I have been involved with assisting an agent
with the rare issue of client turning age 100 & having to not only receive the policy funds, but also getting the huge tax bill on all the deferred gains & possibly filing a tax return for first time in many years. Sadly, some clients own NQ annuity with multiple carriers & they mature at same time in same tax year.

Ideally, the client would have been systematically taking gains over a 5-15 year period to spread the gains out to minimize tax brackets, minimize impact on SS taxation & minimize impact on cost of Medicare premiums.

On a positive note, tax rates today on the gains are likely going to be lower than the tax rate in the future on beneficiaries taxable gains.

Today's lively & energetic 100yr old had $615k in her NQ annuity that had a 3% guaranteed minimum interest rate & surrender charges expired over 15 years ago

Just made me wonder if there is any work out there on making maximum maturity age be later like is the case with life policies.

Guessing most carriers want those old contracts off the books anyway because of the outdated high interest rates & high payout tables with shorter mortality payout tables.

 

[scagnt83]

Guessing most carriers want those old contracts off the books anyway because of the outdated high interest rates & high payout tables with shorter mortality payout tables.

Pretty much. Its not in the carriers interest to do so. Imo it should last until death, no matter the age. Maybe come up with a RMD type requirement if taxes are the issue. But forcing them to surrender is not in the best interest of the client.

 

[Allen Trent]

Maybe come up with a RMD

That is a very good point & idea. RMDs even today tend to be a negative tax play for IRS overall in the long run in my experience. Those clients that don't need their RMD & don't like taking them tend to live on very little, pay taxes in lowest or 0% tax brackets. So, forcing RMD many times forces it to them in 0% or low brackets compared to letting them keep compounding. The IRS would likely get a much larger share at death because the next generation receives as lump sum many times & is often in a higher tax bracket.

I believe this is why they changed RMDs 15+ years ago. Before that, the tables forced all RMDs to be taken between age 70 & age 87 when it would be empty because the factor changed each year by a while number 1. IRS likely saw those escalating RMD amounts go to people at age 80-87 with almost no tax paid on it. So, they changed RMD table to gradually change each year by partial fractional number instead. Get more taxes as a death claim on a lump sum than a small RMD.

In the meantime, I guess producers & carriers may need to come up with some materials/concepts to encourage those with lots of NQ annuity values to start distributions or payout annuity in their 90s so all their taxable deferred interest doesn't all come due at the exact same time with all their NQ annuities with all carriers.

NQ annuities have always been a good tax deferral strategy for high tax bracket clients, but get sold to a lot of low or % tax bracket. Consumers where the tax deferred growth is actually a bad move for them. Would have been better in some taxable accounts, some life insurance, some step up in basis investments or at a minimum taking the interest annually from the NQ so that the ticking time bomb of the large tax on deferred gains at death (or age 100 maturity) is avoided

 

[Life Hawk]

I understand your point, but most annuities don't make it to their intended destination. Life changes and financial needs often interrupt their journey. Security of principle strikes a cord with most of my clients. At a certain age your tiered of listening to 24hr business news telling you the sky is falling.

 

[Norwayguy]

Is it possible to annuities prior to maturity? Might be an option.

 

[Allen Trent]

Is it possible to annuities prior to maturity? Might be an option.

Yes, for sure. But most clients & agents don't know that & because the agent that sold it is gone decades before, there usually isn't much customer service happening. Most clients that get to these ages have fallen in love with the fact they are not required to take money out.

I don't see carriers helping to extend maturity as they want most of this old money off the books. I have actually heard carriers in the industry trying to find ways to not permit maturity to extend to age 100. To date, have not seen that actually forced to happen at say age 75 or 80 like many policies start with as a default maturity age.

Interesting & becoming more common phenomen in recent years

 

[Norwayguy]

Yes, for sure. But most clients & agents don't know that & because the agent that sold it is gone decades before, there usually isn't much customer service happening. Most clients that get to these ages have fallen in love with the fact they are not required to take money out.

I don't see carriers helping to extend maturity as they want most of this old money off the books. I have actually heard carriers in the industry trying to find ways to not permit maturity to extend to age 100. To date, have not seen that actually forced to happen at say age 75 or 80 like many policies start with as a default maturity age.

Interesting & becoming more common phenomen in recent years

Want to not have carriers fighting transfers/withdrawals, find policies on the books with 4% minimum guarantees and bonuses.