The Tortoise and the Hare, Revisited


As kids, we all learned the story of the tortoise and the hare. As a matter of fact, I ran across an old Bugs Bunny cartoon last week, and it took me back to my childhood. Anyway, the hare reminded me that this story can be used in today’s economic environment.

If you can eliminate the downside of any portfolio, you don’t need to have nearly the upside possibility to keep up. Let me explain.

You have an equity portfolio of $100,000, and the market is up 12 percent in the first year. What’s your balance? One hundred percent of people answer correctly: $112,000.

But if the market is down 12 percent in the next year, most people will answer that they still have $100,000 left, because the average return mathematically is zero. The answer is actually $98,560 – you’ve lost 12 percent of the $112,000, which is $13,440.

Now, throw a fixed index annuity into the mix with a 5 percent cap rate. On the surface, it’s not terribly exciting, like the tortoise. But the beauty is that in the first year you lock in the 5 percent gain, and your balance, even with the down 12 percent year, is $105,000. It beats the equity portfolio by $6,440.

I’m not here to tell you that an FIA will beat a market return in the long-term. What I am saying is that a percentage of every client’s portfolio should have the protection of an FIA to smooth out market fluctuations.

The Bottom Line: If you can eliminate the risk of losing money with a portion of your assets in an FIA, you don’t need the full upside of the market to keep pace.

The forest for the trees – focusing on what’s important


Within the fixed indexed annuity (FIA) marketplace, volatility controlled (VC) index options are the talk of the town. Developed to increase the attractiveness of FIA returns in a low-interest-rate environment, these new crediting strategies present something new and interesting to consider. 

However, without a full understanding of the underlying mechanics and, more importantly, the setting of realistic expectation of their potential returns, these new indexes could turn into a new reason for a client to be confused and turned off.

It’s easy to lose sight of the forest for the trees when discussing these indexes. It’s critical to remember the attractiveness of an FIA rests in its simplicity, insulation from market losses, periodic lock in of gains, and its ability to provide lifetime income, even increasing income, all for no to low annual fees. No individual index should overshadow or distract from this package of benefits.

VC crediting strategies were designed to potentially increase the overall return on FIAs. A VC option should be used if a client is looking to increase their accumulation value, increase or extend their residual death benefit, or increase their lifetime income by either outperforming a rollup or providing more punch to an increasing income option.

VC indexes vary significantly in structure and design. Some use spreads, while others use participation rates and/or longer crediting terms. Many are uncapped. It’s important to understand the underlying indexes and to be comfortable with their transparency. You should also understand how the indexes are managed and will respond under various market conditions.    

The Bottom Line: Make sure you understand the latest hot topics and how they could impact your clients before you start making recommendations. Ash Brokerage has access to top carriers in the industry with exposure to a variety of VC indexes, and we’d love to discuss the intricacies and opportunities they may present for your clients.   


Importance of a Guarantee


How important is guaranteed income? Ask any retiree or near-retiree, or read most any survey about concerns in retirement, and the most common fear is running out of money. Financial planners must consider what assets are available and what tools they have available to create and generate guaranteed, lifetime income.

Today, one tool often used in financial plans is an annuity with an income rider. An income rider guarantees an income payment for the life of the insured, and can even be set up to guarantee income payments for the insured’s spouse. Clients may even have the option for increasing income payments under some annuity contracts. 

Here’s how it works: The average payout factor at age 70 is 5 percent. If your income base amount is $200,000, then the resulting payout is $10,000. In most cases, this would be the amount the insured would be guaranteed on an annual basis for their lifetime.

With an increasing income payment option, when there is any interest credited to the annuity, the insurance company increases the last annual payment amount by the interest earned, expressed as a percentage. Say your annual income payment was $10,000; however in the last contract year, you earned 4 percent in interest. The insurance company would then increase your lifetime annual income payment to $10,400. Choosing this option would help you keep pace with inflation, and potentially help you offset higher health care and other costs. 

The Bottom Line: Guaranteed lifetime income is important to many of your clients. Show them options with annuities and income riders. 


guarantee income annuities retirement

Who’s benefitting from annuities?


Were your clients attracted to an annuity because of the ability to convert its value into a guaranteed stream of income – through annuitization or a lifetime income rider? The options are attractive, so it’s likely you have a few clients who fit that bill.  

Statistics show, however, that only a small percentage of clients take advantage of those features – less than 5 percent of annuities are ever converted into an income stream. This means that the vast majority of annuities will eventually pass to the owner’s beneficiary upon their death. 

Knowing those facts, you should talk to your clients about death benefit riders that are now available on select indexed annuities. Choosing a death benefit rider (available with a cost assessed at the end of each contract year and with NO medical underwriting) could allow your client’s beneficiary to receive an enhanced rollup value as a death benefit, all the while providing payout options and the opportunity to spread out their tax liability. 

The Bottom Line: Instead of discussing interest rates and caps, talk to your clients about how death benefit riders on indexed annuities can create a legacy for their loved ones. Contact your Ash Brokerage annuity RVP or internal wholesaler for help starting the conversation.   


Simple is as Simple Does


Sounds like a line from Forrest Gump, doesn’t it? That may be the case, but the phrase also serves as an apt description for one of the major benefits of fixed annuities: simplicity. I’ve never a client complain because their portfolio or financial plan was “not complex enough.” Have you? 

Couple simplicity with tax deferral, liquidity, low to no fees, and guaranteed rates, principal and income, and you have a very desirable product for your conservative clients and those looking to build a solid foundation under a more aggressive portfolio.

Oh, and how about two more benefits that may be the most important of all, especially in today’s economic environment? Correction protection and increasing future income.

A market correction is imminent – perhaps not this month or this year, but potentially next year or shortly after. Existing or soon-to-be-realized market gains are increasingly in jeopardy if they’re not locked in soon. A fixed indexed annuity can protect those gains and give your clients the chance to participate in near term gains, yet to be, before the correction. 

Concerning income: If generating income now is important, will is be any less so in the future? No, it will be more critical in the future. Increasing income riders on fixed indexed annuities can guarantee future income increases for minimal cost compared to other alternatives.

The Bottom Line: Simplicity has value and is only one of the many benefits that fixed annuities provide. With a market correction on the horizon, staying in place and not going backwards is progress.


market income taxes deferral