Annuities

Fact or Fiction? You Be the Judge


Annuities

We’ve heard in the past that October is the biggest CD rollover month of the year – fact or fiction?

Let’s look at some history. CDs were first sold in six-month increments (six months, 12 months, 18 months, etc.), but in October of 1983, they became deregulated.  

Tax returns were a leading factor in the October/April trend. We saw an increase of CDs being established by people receiving a refund, or they surrendered their CDs to help pay for taxes due. At one point, Bank Rate Monitor estimated that upwards of $100 billion in CDs was in transition in each of those two months.

In order to smooth out the issuing of CDs and reduce the amount in play during October and April, banks started to offer them on odd terms, such as seven or 15 months. This slowly moved the trend across the balance of the year.  

Look at today’s CD rates on Bankrate.com*:

  • 1-year national average of .98% 
  • 2-year national average of 1.17%
  • 5-year national average of 1.86%

Are CD’s the right place for your clients? Or are you still following an outdated trend? The fact is, October is no longer one of the two hottest months for CD rollovers. It’s open season throughout the year.  

If your clients are looking for … 

  • Protection of principal
  • Security from negative market fluctuation
  • Tax deferral
  • Penalty-free access to a portion of account value each year
  • Opportunity to create guaranteed income for life

... Make sure you contact a member of the annuity team at Ash Brokerage to help you with CD alternatives – annuities are also available all year long.

*As of Oct. 10, 2014 

CD Annuities Rates

Performance and Price are Irrelevant


Annuities

Too often, we become focused on the price or performance of a particular solution we offer. Whether it’s annual premium or return to the client, we allow it to dictate the conversation with price-sensitive parameters. Currently, there is a great example of how price, performance and return to the client really don’t matter in the industry. Instead, it’s about vision, leadership and perspective. 

The PIMCO Total Return Bond Fund has been an industry goliath for years.  

 

Name

1 Year

3 Year

5 Year

10 Year

PIMCO Total Return (Class A)

5.71%

3.88%

5.21%

5.65%

Barclay’s US Aggregate

5.66%

2.91%

4.48%

4.72%


Yet, $23.5 billion left the bond fund giant in September. The previous industry record outflows were $9.7 billion and $4.7 billion. So, a fund with superior performance lost $23.5 billion dollars (the majority of that happened last Friday after Bill Gross’s resignation) in one month. 

What does this tell us? Investors and clients really don’t care about price and performance. They’re seeking leadership.  

Be a strong voice in your business. Position yourself as the go-to person in your market and provide leadership to your clients. Lead them down a path of discovery to understand insurance and annuities are vital to their retirement plan.  

The Bottom Line: As the PIMCO example illustrates, it’s not about performance – it’s about belief and perception. We have to change the perception of life insurance and annuities in financial plans. We have to tell the story and get the client to believe in our leadership and ideas. 

 

When Did We Lose Our Way?


Annuities

I arrived home and picked up about three days’ worth of mail. When I picked up Insurance News Net magazine, I was shocked to see the headline, “How to add AUM Now.” And, AUM was emphasized in bright colors. While I know that this publication supports all facets of our industry, it is clearly supported by risk mitigation products. 

Sadly, I think this is indicative of our industry. We have drifted so far toward AUM, which by the way stands for assets under management, that we have lost our way. I have some questions:

When did we lose our sight of what got us into the business?

At what point did we sell our souls to accumulation and wealth building?

How did wealth management translate into just growing assets and not truly managing wealth?


As an industry, we need to get back to talking about life insurance, disability income, long-term care and longevity insurance. We can no longer talk, promote and focus on growing assets alone. In today’s economic environment, protecting assets should be more important than growing them.

We all have a responsibility to make advisors aware of the growing gap in Americans’ ownership of protection products. It begins with each one of us looking in the mirror and asking if we have the clients’ very best interest in mind when we focus on growing assets and not protecting lives. It begins with carriers focusing on new product development with ongoing commission to eliminate the exchanges of products and supporting annual reviews. It begins with a changing mindsets. 

The Bottom Line: When did we sell out to asset management as a business model versus what got us into the business?  

Retirement income opportunity ready to explode


Annuities

Today, the United States has 42 million retirees, and by 2025, the number will grow to 65 million – meaning  nearly 4 million people a year will be entering retirement. LIMRA estimates that the value of assets held by those ages 55 and above will double to nearly 22 trillion by 2020. 

This opportunity was validated by a recent BlackRock Investor Pulse Survey. Key takeaways from the polled investors (defined as having investable assets of $50,000 or more) include:

  • 62% were concerned about having enough income from investments to live comfortably in retirement
  • 54% agreed with the statement “I'm worried about outliving my savings”
  • 73% agreed, “Keeping my money safe is more important to me than trying to generate returns” 

BlackRock President Rob Kapito said, "People are living longer than ever before, dramatically altering the financial challenges of retirement … Increased longevity is a blessing, but it’s an expensive one because that translates into the need for a bigger retirement nest egg and access to secure, retirement-long income. As our survey suggests, many Americans simply won't have the money they need to enjoy their longer lives if they don’t start investing differently.”

So if you aren’t educating yourself on guaranteed income options for your clients, I’ll bet they’ll be asking another advisor instead.

Ash Brokerage has access to a diverse lineup of fixed index annuities with lifetime withdrawal benefits, including predictable income and income that has the opportunity to increase based on your clients' chosen allocations. You know your clients better than we do, but we know which solutions can be tailored to meet their needs. Call us today – we’ll take it from there.

IRS green lights new Roth IRA rollovers regulations


Annuities

Last week, the Internal Revenue Service provided guidance that permits employees to roll over their after-tax contributions directly into a Roth IRA, tax-free. This ruling applies to rollovers from 401(k), 403(b) or 457 plans. 

You can read Notice 2014-54 “Guidance on Allocation of After-Tax Amounts to Rollovers” at http://www.irs.gov/pub/irs-drop/n-14-54.pdf.

The notice states: “The applicability date of the regulations is proposed to be Jan. 1, 2015. However, in accordance with § 7805(b)(7), taxpayers are permitted to apply the proposed regulations to distributions made before the applicability date, so long as such earlier distributions are made on or after Sept. 18, 2014."

Here’s an example of how it would work:

Retirement Plan Account Value: $200,000

  • Pre-tax Amount $150,000
  • After-Tax Amount $50,000

Total Distribution: $200,000

  • Tax-free rollover to traditional IRA: $150,000 
  • Convert tax-free to Roth IRA: $50,000

Opportunities

  1. Check in with clients to determine if they have after-tax money in their retirement plans, and if not, see if they can make such contributions. Not all plans are created equal – you will need to check the plan document for rules on after-tax contributions.

    Your clients can benefit from tax-deferred savings on money that's already been subject to income taxes and then convert it to a Roth IRA upon distribution. This will generally apply to higher income clients who can afford the larger contributions, but because of their income they are likely ineligible to make annual contributions to a Roth.

  2. Clients over 59 ½ with after-tax contributions in their retirement plans can take advantage of non-hardship in-service withdrawals and roll both pre- and post-tax contributions into traditional and Roth IRAs.

  3. Last but not least …. What’s better than tax-free retirement income? Tax-free retirement income guaranteed for life! If your client or prospect’s Roth IRA will be a source of retirement income (as opposed to a way to pass this wealth tax-free to children or grandchildren), doesn’t it make sense that this income should last as long as the client and their spouse live? An annuity may be the answer

    No one product is the best fit for all situations. At Ash Brokerage, we can offer a wide variety of lifetime income solutions from top-rated carriers to meet your clients’ unique needs. Contact your RVP or internal wholesalers to learn more about this opportunity.