That's what I was getting at. The number is meaningless without the other piece of the puzzle.
That's what I was getting at. The number is meaningless without the other piece of the puzzle.
- 2,455
Conversely you could have lost dollars in the market and not enough to make it through retirement in a high inflation period or through a period where inflation isn't high as well.
You want no dollars or deflated dollars? I would rather have deflated dollars over no dollars myself. However a good plan makes allowances for inflation or at least tries to so you might not be strictly in annuities or fixed ones anyway.
You see "that" everyday. I see all kinds off stuff everyday and it is usually people who didn't save enough verses somebody who didn't invest enough.
- 15,041
And it is a great counterargument. Annuitization tables definitely aren't what they were 20 or 30 years ago. But it there could just as easily be a great new product that comes out to which the client would want to move.
There definitely isn't a cut and dried right or wrong answer to this.
- 10,589
Here is my take on this.
Its not a bad option, and certainly will return slightly more than your principle no matter what happens in the market.
But lets compare it to a standard 10y IA with a 4% yearly cap.
-Returns:
Guaranteed Min:
Bonds/Market- $103,614 (2% on $85k)
Index Annuity- $110,462 (1% on $100k)
7% Market
B/M- $133,121
IA- $148,024
8% Market
B/M- $135,997
IA- $148K
9% Market
B/M- $139,124
IA- $148K
10% Market
B/M- $142,520
IA- $148K
11% Market
B/M- $146,205
IA- $148K
12% Market
B/M- $150K
IA- $148K
Not until a 12% market does the B/M method gross more.
Thats not including taxes on the B/M account if its NQ, or fees on managing the stock portfolio. After that bump the breakpoint up to at least 13% or 14%.
And thats not even taking into account the extreme likelihood of a higher IA cap rate if the market is returning 10 year averages of 13%...
And I did not include any bonuses on the IA in the calculations.
-Access-
B/M method gives you plenty of liquidity, but also plenty of ambiguity on the possibility of being forced to realize a loss.
IA gives you 10%.
But you are not potentially forced to realize a loss, and are not forced to remove funds at an inopportune time creating a potential lost opportunity cost.
But unlike Treasuries, you could ladder annuities anywhere from 4-10 years. So hypothetically after year 4 you could have a rolling 14% extra in addition to the constant 10%. So we will call it 24% after year 4.
-Probate-
Annuity is probate free, has multiple distribution options, and can possibly be "stretched" on inheritance.
-Guarantees-
This is what people most like about them.
Sure the B/M method guarantees your principle, or a very slight return, but the IA method gives more and better guarantees.
Not only does the IA Guaranteed Min yield more, but throw in Income Riders and the B/M method would need 20%+ market returns to beat a 7% Income Rider.
-Distribution Phase-
Assuming an 8% market:
B/M-
$6,799/y using 5% withdrawals.
Assuming 4%ish Bonds this would have around a 42% chance of a 30 year success according to WellsFargo.
Since we are at a 2%ish 10 year rate we can assume its now less.
IA-
Using the Income Rider you are guaranteed $9,835/y
Using traditional withdrawals you are at $7,400/y
The Income Rider is 100% guaranteed.
The withdrawals at 5% would not be, but the success rate using similar methods as the link above would likely be in the 80+% range just to give comparison.
Now Im not saying B/M method is wrong, but the IA methods advantages over the B/M method are many. This is why clients like them and are gravitating to them.
You sell IAs on the guarantees, because most of the the prospects for them do not need to be taking on the risk of 10+% market returns. They need decent returns in relation to the economy, coupled with Guarantees. This is what IAs were designed to do.
- 456
Great Post! Very well said.
- - - - - - - - - - - - - - - - - -
Not to mention the fact that a annuity does ONE THING
better than ANY other vehicle. A income you CANNOT outlive.
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- 10,589
Of course it looks different if your calls work out right... but you are also taking on a lot more risk going with options over dividend paying stocks...
No you aren't. You're doing the same thing the insurer is doing. And because of the leverage provided by the options, you could put 90% in Treasuries, or maybe 95%, and only buy calls with a smaller amount.
My numbers were shooting from the hip.
The only thing about a FIA that can't be replicated easily is the income rider. The roll up and withdrawals are smoke and mirrors. The meat & potatoes that makes income riders work on any product, is the fact that some people will die early and not ever see their contracts go to zero.
My numbers were shooting from the hip.
The only thing about a FIA that can't be replicated easily is the income rider. The roll up and withdrawals are smoke and mirrors. The meat & potatoes that makes income riders work on any product, is the fact that some people will die early and not ever see their contracts go to zero.
- 15,041
And unless it was annuitized (which income rider is not), the beneficiary still receives whatever cash remains.
