Index Annuity Recommendation

[bluemarlin08]

Great observation Frank.

 

[0b1kanobee]

Well if you started taking income with LSW at age 65 and the amount per month is $912.12 and you did this till you were 85 Y.O. and died, you will have been paid $218,880.

Since my calculator just decided to die on me, I can't figure what the internal rate of return is right now. I just don't see where this is a bad deal.

If you don't take the rider and you are partly in the index and partly in the fixed account buckets, let's just say it earned 4.5%. In 10 years you would annuitize correct? Let's also say that the account is somewhere at 150k in ten years. You then start pulling out money at the rate of $912 per month or $10,944 per year. In 14 years you will have depleted the account and that is if the account earned 4.5% That puts you at 79 Y.O. So lets just give it another year for good measure and say you were able to take money till you were 80 Y.O. because the annuity earned more than 4.5%

If you live past 80, then you run out of money without the rider. What happens if you live to be 85 or 90??? Well I guess you are in the same boat as when you were 80. I'll take the rider. With LSW, they also do not pay extra commission for adding the rider. I have no reason to put the rider on the policy, only to make sure I provide a pension, for life, if that is what is best for the client and what they want.

The number one fear in retirement is running out of money as people are living longer.
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10 years of deferral and an income rider?

There are plenty of options. If they truly only care about the income amount when the rider kicks in, than LSW ok. LSW is offering 8.15%, but they also lowered the payout percentages. Very tricky marketing ploy - basically the same as the old 7% roll-up.

For the highest payout, there are other companies that offer better bottom lines after 10 years. RBC, Midland, American Equity to name a few.

The payout percentages were lowered before the roll-up was increased and it is based on the age of the annuitant. The rider increased 20 basis points. If you use the old calculator and the new one from the company, the payout is more now so I am not sure how you can say there is no difference.

 

[Franz Kafka]

Well if you started taking income with LSW at age 65 and the amount per month is $912.12 and you did this till you were 85 Y.O. and died, you will have been paid $218,880.

Since my calculator just decided to die on me, I can't figure what the internal rate of return is right now. I just don't see where this is a bad deal.

If you don't take the rider and you are partly in the index and partly in the fixed account buckets, let's just say it earned 4.5%. In 10 years you would annuitize correct? Let's also say that the account is somewhere at 150k in ten years. You then start pulling out money at the rate of $912 per month or $10,944 per year. In 14 years you will have depleted the account and that is if the account earned 4.5% That puts you at 79 Y.O. So lets just give it another year for good measure and say you were able to take money till you were 80 Y.O. because the annuity earned more than 4.5%

If you live past 80, then you run out of money without the rider. What happens if you live to be 85 or 90??? Well I guess you are in the same boat as when you were 80. I'll take the rider. With LSW, they also do not pay extra commission for adding the rider. I have no reason to put the rider on the policy, only to make sure I provide a pension, for life, if that is what is best for the client and what they want.

The number one fear in retirement is running out of money as people are living longer.
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The payout percentages were lowered before the roll-up was increased and it is based on the age of the annuitant. The rider increased 20 basis points. If you use the old calculator and the new one from the company, the payout is more now so I am not sure how you can say there is no difference.

It's not a "good deal" - it's just what it is at current interest rate. You can't figure out the actual IRR with a regular financial calculator. I have a formula for that on a excel CD file stuck somewhere (I used to actually show that to a prospect). Regardless, "if" the rate is higher in 10 years, she will get more income when she lifetime annuitizes. It's just the way it is.

 

[0b1kanobee]

It's not a "good deal" - it's just what it is at current interest rate. You can't figure out the actual IRR with a regular financial calculator. I have a formula for that on a excel CD file stuck somewhere (I used to actually show that to a prospect). Regardless, "if" the rate is higher in 10 years, she will get more income when she lifetime annuitizes. It's just the way it is.

so what "if" the rate is lower in 10 years or flat? Do you still think the client gets more income?

It sounds to me that you are of the opinion the income rider is always a "bad deal".

 

[Franz Kafka]

so what "if" the rate is lower in 10 years or flat?

Then you'd be a hero and I mean it sincerely. That could happen. Granted current discount rate is 0.75% - that could still go down to 0.10% and stay there for a long time like Japan.

It sounds to me that you are of the opinion the income rider is always a "bad deal".

Shoot, my clients with income rider from 2007 think it's the best deal they have had in life!

 

[spartuna]

With the LSW GLIR, there is an enhanced payout if deferred 5 yrs. and the client needs LTC,(not available with joint income) that increases payments by almost 50%.

 

[InsureGuy5]

Personally, I stay away from those that force an annuitization in ten years. Allianz has some nice ten year walk away annuities.

This way you can perhaps get more income purchasing an immediate annuity down the road, but not be locked in if their financial situation has changed.

 

[arnguy]

Great observation Frank.

Be careful, it's Franz not Frank!

 

[bluemarlin08]

I looked at the AVIVA plan, the one that has an income accumulation bucket that compounds at 8% guaranteed. I did the same numbers into a 4% gross return, then compound the net for 10 years, just like the annuity, and buy an immediate annuity, using current rates, and get a better income. Of course one must assume rates will stay the same, but in this low rate environment, why lock in?

 

[golfnut]

I like a non bonus FIA in this case, especially considering the low cap enviroment on so many bonus annuities right now. As a previous poster indicated, do a 10 year or less product and then convert to a SPIA.