Any Fixed or FIA with Greater Than 10% Free W/d?

[DHK]

I've been on a "social security claiming" educational track this week.

Here's a webinar with Dr. Wade Pfau on fitting Social Security into Retirement Income Planning: Online News for Financial Advisors, RIAs, Investment Advisors, Financial Planners & Wealth Managers

Anyway, the idea is that (assuming good assets and health), that you split up the financial assets so you can delay claiming social security until age 70, so you can then claim the highest benefit.

Here's the thing: If your client is 62, and you want to wait until age 70, that's 8 years. If you are splitting up assets ONLY among annuities, then 100% / 8 years = 12.5% withdrawal rate.

Or, you'll have to allocate MORE money into the 8 year strategy because of the contract limitations of the vast majority of annuities that limit free withdrawals to 10%.

I know Assurity Encore Fixed Annuity allows free withdrawals up to 12%, but I just don't like it. For a 9-year fixed annuity, the current rate for the 1st 2 years is only 1.6%.

Now, if I remember correctly, INTEREST EARNED in annuities can always be withdrawn without surrender charges... but I'm going to have to verify that, because I can't be sure right now.

So... for the purpose of social security claiming strategies in retirement income planning, are there any annuities that allow a higher free withdrawal rate over 10%?

----------

Oh, and yes, I know you can do an immediate annuity with a period certain, so that might be my 'default option' if there isn't much out there.

 

[Tahoe Ray]

I've been on a "social security claiming" educational track this week.

Here's a webinar with Dr. Wade Pfau on fitting Social Security into Retirement Income Planning: Online News for Financial Advisors, RIAs, Investment Advisors, Financial Planners & Wealth Managers

Anyway, the idea is that (assuming good assets and health), that you split up the financial assets so you can delay claiming social security until age 70, so you can then claim the highest benefit.

Here's the thing: If your client is 62, and you want to wait until age 70, that's 8 years. If you are splitting up assets ONLY among annuities, then 100% / 8 years = 12.5% withdrawal rate.

Or, you'll have to allocate MORE money into the 8 year strategy because of the contract limitations of the vast majority of annuities that limit free withdrawals to 10%.

I know Assurity Encore Fixed Annuity allows free withdrawals up to 12%, but I just don't like it. For a 9-year fixed annuity, the current rate for the 1st 2 years is only 1.6%.

Now, if I remember correctly, INTEREST EARNED in annuities can always be withdrawn without surrender charges... but I'm going to have to verify that, because I can't be sure right now.

So... for the purpose of social security claiming strategies in retirement income planning, are there any annuities that allow a higher free withdrawal rate over 10%?

----------

Oh, and yes, I know you can do an immediate annuity with a period certain, so that might be my 'default option' if there isn't much out there.

Just do the SPIA.....Symetra normally looks good for these cases in CA and pays decent comp.

American General has a MYGA product with decent rates and a 15% free out but you run into a problem with what you're trying to do....that free out is based on accumulation value, which makes for a mess in a product earning 2.75-3% and you're drawing it down at a 12.5% clip.

Plenty of products offer cumulative surrenders but telling a client to withdraw every other year doesn't work either.

You could look at products that allow for early annuitization. I think GALIC has a 1x7 (maybe Valor?). They could fund the first year out of pocket, if they get some good gains that year, free out the gains (to replace year 1 oop) and annuitize the rest over 7.

The SPIA 8 year certain only is certainly the simplest, albeit the least attractive from a return perspective (IRR is normally around 1.5%...at least it was on the last one we did a month or so ago.)

Maybe someone else has some better ideas but this type of "bucket strategy" (earmarking $$ over a specific time frame) is very challenging in this rate environment, as I'm sure that you already know.

Sorry I couldn't help more.

 

[DHK]

Thanks. I sent an email message to ANICO regarding interest credited being available to withdraw without surrender. I have yet to hear, but I think it is. Yet, with ongoing withdrawals and interest credits to make up for the retirement income need... it might not be the best way to go.

You're right - the SPIA would be the simplest way to go... but it's YTB is also low.

Of course, this is really dependent upon the client having sufficient assets and health to warrant such strategized planning in the first place AND having enough assets to compound with a lifetime income benefit rider to maximize income from the annuity & SS.

 

[aclaro]

Look at Athene. Solid product I believe you can get 20% free withdrawal. Also instead of a SPIA look at SCF. They are paying 7 on the 10 year product.

 

[DWPCL]

Look at Athene. Solid product I believe you can get 20% free withdrawal. Also instead of a SPIA look at SCF. They are paying 7 on the 10 year product.

Its inly a 20 free withdrawal if you dont take one the year before.

 

[scagnt83]

Here is a possible solution.
Take their NQ assets and put them in a Single Premium Life policy. There are a few out there that put you in the black within the first 3 or 4 years.

NA/Midland will put you in the black year 1, even on the guaranteed column. I see them as being the best go to in this situation. The 100% liquidity, guaranteed to be in black year 1, and has an overloan protection rider are all key to this imo.

If the NQ assets are enough of the nest egg, you could liquidate a large portion of the SPIUL for income during those 8 years. Then after those 8 years use the SPIUL as a savings type account that is tax deferred.

 

[DHK]

I like that - especially for using any remaining death benefit on the SPL as a way to help with survivor income after their passing and help close the Social Security gap.

 

[BNTRS]

NA/Midland will put you in the black year 1, even on the guaranteed column. I see them as being the best go to in this situation. The 100% liquidity, guaranteed to be in black year 1, and has an overloan protection rider are all key to this imo.

I like that - especially for using any remaining death benefit on the SPL as a way to help with survivor income after their passing and help close the Social Security gap.

Just a cautionary note on MEC's used in distribution scenarios with loans. New loans to cover loan interest can have an income liability.

Had a guy call us about a year ago with this problem. He bought a SPWL policy several years ago, took a few loans out, then left the loans outstanding and capitalized interest. Received a few 1099's and ignored them. Then got a paper audit from the IRS with a not so insignificant amount claimed due to the Treasury.

Good news was he had more than enough cash in the policy to withdraw and pay the taxes due. Bad news is he now has considerably less money (and death benefit) than he thought he did.

----------

And to speak to the free withdrawal question...the interest rates aren't stellar, but Jackson National Life has had a few fixed annuities with 15 and 20% free withdrawal amounts.

 

[scagnt83]

Just a cautionary note on MEC's used in distribution scenarios with loans. New loans to cover loan interest can have an income liability.

Had a guy call us about a year ago with this problem. He bought a SPWL policy several years ago, took a few loans out, then left the loans outstanding and capitalized interest. Received a few 1099's and ignored them. Then got a paper audit from the IRS with a not so insignificant amount claimed due to the Treasury.

Good news was he had more than enough cash in the policy to withdraw and pay the taxes due. Bad news is he now has considerably less money (and death benefit) than he thought he did.

----------
.

Could you explain how this works a bit more in depth? Is it the interest on the Loan that is getting the 1099?

 

[pfg1]

My understanding fwiw....Tax is due on the gain in the policy when he took out the $ (w/d or loan) so that would be the 1099. Even though its a loan since it was a MEC its still LIFO and taxable on the gain. If there was no gain, there should be no 1099. The interest really shouldn't have anything to do with the IRS I wouldn't think. Just addl money owed back to the company, reducing DB if insured dies.

I have done a few MEC's... not had anyone take a loan from them.