by Sisan » Mon Dec 10, 2012 07:27 am
A 401k plan is an employer-sponsored retirement plan that allows you to save money for retirement while deferring income taxes on the savings until the time of withdrawal. Investments typically consist of mutual funds focusing on stocks (including, perhaps, your company’s stock), bonds, and money market funds or stable value investments.
An Individual Retirement Account (IRA) also allows you to save money for retirement in tax advantaged way. An IRA is similar to a 401k, but an IRA can be set up without the help of an employer.
Rolling your 401k or IRA into an Annuity gives you a continued tax shelter, while permitting you a huge range of index options, guarantee of principle options, and living and death benefits that can protect you and/or your family whether the stock and bond markets go up or down.
An Individual Retirement Account (IRA) also allows you to save money for retirement in tax advantaged way. An IRA is similar to a 401k, but an IRA can be set up without the help of an employer.
Rolling your 401k or IRA into an Annuity gives you a continued tax shelter, while permitting you a huge range of index options, guarantee of principle options, and living and death benefits that can protect you and/or your family whether the stock and bond markets go up or down.
Posted: Mon Dec 10, 2012 04:07 pm Post Subject:
an Annuity gives you a continued tax shelter,
Don't misunderstand this statement. The annuity does not add anything to the "tax shelter" (which is nothing more than tax-deferred growth of principal and interest) that an IRA already has.and living . . . benefits that can protect you
Just ask the folks who bought Indexed Annuities from The Hartford how happy they were to hear more than six months ago that they won't necessarily be "protected" because they probably won't be getting that lifetime withdrawal benefit they were sold in the last few years. The lawsuits are on the drawing boards as we speak.
http://www.investmentnews.com/article/20120427/FREE/120429924
Not to say it couldn't be a good decision to rollover retirement plan assets into an indexed annuity, but it's not guaranteed beyond the financial ability of the insurance company. Advantages are always tempered with disadvantages. And annuities have at least as many disadvantages as they do advantages.
And it's not that simple a decision, either. Agents either fail to know or understand the disadvantages, and concentrate on selling only the advantages as the marketing department has laid them out. Among the potential disadvantages are the distinguishing characteristics of the various interest crediting schemes, the participation rates, rate caps, and spreads -- all of which are designed in the insurance company's best interest, not that of the annuitant.
All of those can work against the policyowner, just as much as a 0% guaranteed interest rate can prevent the loss of accumulated value. But at 0%, your money works just as hard for you in a shoebox under your bed -- only the shoebox doesn't impose a surrender charge, and you won't pay a penny of income tax, to take some money out whenever you need it. (Yes, I realize the shoebox is only as secure as the doors and windows that would deter a thief from gaining access to your home. A big, loaded gun is a great additional deterrent.)
At 0% interest in either location -- who cares about tax-deferred growth? There is no growth to tax.
For these reasons and many more, the states have almost unanimously adopted the NAIC's Annuity Suitability model regulations that require agents to have product-specific training for every different annuity product they offer to the public. I also know the insurance companies are not doing a very good job of complying with these laws.
Posted: Mon Dec 10, 2012 06:58 pm Post Subject:
I didn't misunderstand the statement. Everything has a pros and cons to it, but the advantages that INDEXED ANNUITY has over 401K or IRA is greater. what would YOU prefer to a client that has $100,000 in his hand and wants to have access to it. Unlike IRAs and 401Ks , annuities don't have the 591/2 age clause, doesn't have the limitation to it, doesn't have the risk,doesn't have the maximum contribution,....
IRAs/401K that fluctuate with some kind of mutual fund or stock are risky and has fess and penalties, let's ask people who are soon to be retired if they would take the risk of the market.
IRAs/401K that give you fixed interest rate if you compare it with the inflation rate you won't get a good result.
If you compare the cons and pros of the annuities, the advantages are going to be greater and benefit the policy owner more. Annuity has the advantages of leaving your money to your loved ones AND escape the probate court and so on and on.
Posted: Mon Dec 10, 2012 08:51 pm Post Subject:
but the advantages that INDEXED ANNUITY has over 401K or IRA is greater
You cannot make this statement. The three things are entirely different from one another for a variety of reasons. But your statement is an overly broad generalization that does not wash. I'll deal with it later.
Orignal post:
Rolling your 401k or IRA into an Annuity gives you a continued tax shelter
and most recent post:what would YOU prefer to a client that has $100,000 in his hand and wants to have access to it. Unlike IRAs and 401Ks , annuities . . . .
Now you're mixing apples and oranges. Do you want to discuss qualified annuities or nonqualified annuities? You cannot discuss them both or compare them in the same sentence because while they share some common elements they also have several fundamental differences.
Unlike IRAs and 401Ks , annuities don't have the 591/2 age clause
Now I know you have no idea what you are talking about, which makes you a very dangerous agent. The public is at risk of being harmed by your inexperience and lack of knowledge.
ALL ANNUITIES ARE SUBJECT TO THE AGE 59-1/2 early distribution penalty tax. Makes no difference whether the discussion is about qualified or nonqualified annuities. But you apparently don't know the difference. Don't believe me? Try to take $1000 one-time partial surrender from a nonqualified annuity at age 59 and 179 days and see what you owe. In addition to the income tax, you will have a $100 penalty tax to pay (unless you are disabled, or you are the beneficiary of a decendent's annuity)
When you rollover 401(k), 403(b), or IRA assets to an annuity, you have a QUALIFIED ANNUITY, and it is still subject to age 70-1/2 RMDs along with all of your other qualified retirement plan balances combined, which is the point you may have been trying to make about a nonqualified annuity -- there is no requirement to ever take money out of a nonqualified annuity.
So let's take a look at all the rest of your statement
annuities don't have . . . the limitation to it, doesn't have the risk,doesn't have the maximum contribution,....
We'll assume you are not talking about a QUALIFIED annuity (because QUALIFIED annuities are under the EXACT SAME RULES as qualified retirement plans). You make the same statement twice, using different words. "Limitation" and "Maximum Contribution" is the same thing, and that's a true statement, with one important exception. Since a nonqualified annuity is funded with AFTER-TAX money, the IRS could care less how much money you put into the annuity (the principal) -- they will not tax that money again. They will only be interested in the gains, which will be fully taxable, and must be taken before any principal is withdrawn.
The insurance company has its own rules. And most insurance companies will not simply take unlimited amounts of money. You need their permission to deposit more than $1,000,000 or $2,000,000 at one time. Will they turn down your money? They certainly could, which means you will have to purchase multiple annuities with your multiple millions of dollars (which may actually a better idea than putting all of it in one annuity). So there are some limitations or maximum contributions that could be imposed -- not by law, but by the rules of the game. The insurance company's rules.
But you also included four words in your statement that demonstrate your foolishness: "doesn't have the risk".
What risk are you talking about? The risk of loss of principal? OK, I'll concede that, because it's an advantage of an Indexed Annuity compared to a Variable Annuity. But what do you get in exchange for what you believe is "no risk"?
You could get a guarantee of 0% interest. That's not much of a guarantee. What interest crediting scheme are you going to get? Monthly point-to-point, monthly average (over 12 months), annual point-to-point, biannual point-to-point, five-year market value adjusted . . . the list goes on. Only monthly point-to-point is truly to a person's maximum advantage.
One bad month does not wreck an entire year. But several bad months can completely wreck an otherwise OK year in a monthly average scheme. One bad day can ruin an entire year in annual point-to-point, and one bad year can wipe out one good year in a two-year scheme. No one can tell you what's going to happen over five-years, but I wouldn't recommend that nonsense to anyone.
But those are only one aspect of interest crediting. Let's not forget the participation rate, the rate cap, or the spread.
I would be willing to bet that you describe Indexed Annuities to folks with the following statement: "You get all the upside of the market with none of the downside." Please tell me if I'm assuming the wrong thing. Because when you or any other agent makes that statement, it is a 100% LIE
The participation rate and/or the rate cap puts a LIMITATION (you said there were none, remember) on the earning capacity in the contract. While most current Indexed Annuities offer 100% (or greater) participation rates, it was only a few years ago when the best you might have gotten in the majority was 80%. If you don't have a 100% participation rate, you do not get "all of the upside" -- period.
But what about the rate cap? Even if you have a 140% participation rate, the insurance company is not willing to give you 100% of that either, and you may find that you are limited to just 12% maximum interest in one year (could be more, but that's the insurance company's choice, not the policyowner's). The spread is even worse -- it's the amount of interest the insurance company deducts from the interest gain before it sets the crediting rate in the coming year. A spread of just 6 or 8 percent could take you right back to 0%.
NO INDEXED ANNUITY PROMISES UNLIMITED INTEREST GAINS. They all have limitations.
IRAs/401K that give you fixed interest rate if you compare it with the inflation rate you won't get a good result.
OK, so what? The vast majority of retirement accounts to which participants are still contributiing are NOT in fixed rate vehicles. So this is a non-point.let's ask people who are soon to be retired if they would take the risk of the market.
Well, the answer to that depends on who the person is. Most people who are nearing retirement should become more conservative, and seek the more fixed rates of return. But a highly experienced investor might not care -- his/her intent might be to leave as much behind for their heirs as possible, and taking a more conservative approach would be unwise. Do you think Warren Buffet has all his money in bonds? Of course not.IRAs/401K that fluctuate with some kind of mutual fund or stock are risky and has fess and penalties
What fees and penalties would you like to discuss? The employer pays the fee to maintain a 401(k) plan, and it does not affect the return to participants (although it might affect the employer's ability to make matching contributions) so that's a non-issue. An IRA might have a $25-$50 annual maintenance fee, but that's usually waived once your account balance reaches a certain minimum. So another non issue. (Indexed Annuity annual fees are frequently far more than this.)Neither 401(k)s, 403(b)s, nor IRAs have any "surrender charges". So the only "penalty" a person is exposed to is the 10% pre-age 59-1/2 penalty tax. But that's common to all annuities, too, so that's a moot point.
Now let's look at annuities and their fees and expenses. You want a 1% or 2% minimum guarantee instead of a 0% guarantee? You might have to trade that for a 15-year surrender period with a 10% or greater penalty on partial surrenders in years 1-5 or 1-10. Most annuities will let you have up to 10% of last year's balance without a surrender charge this year, so your $100,000 annuity would allow you access up to $10,000 without a $1,000 penalty. But if you need more, you have to give up 10 cents on the dollar for every dollar you take out.
What if someone offers you a "better" annuity and you take out the entire $100,000? You get hammered with a $9,000 surrender charge, and your net proceeds are only $91,000. No risk there, right? LOL!
Now, personally, I don't get all hung up over annual fees, and annuities definitely have them, just like life insurance. But there's a separate fee for the mortality guarantee (living too long), the death benefit guarantee (dying too soon), the living benefit rider (guaranteed withdrawals/income as long as you live -- which insurance companies now realize were too generous and they cannot really afford them, which causes other fees and expenses to increase), the LTC rider . . . the list of fees is far more extensive and costlier than any associated with a person's IRA or 401(k). So you lose on that point.
Annuity has the advantages of leaving your money to your loved ones AND escape the probate court and so on and on.
Well, perhaps you just don't know enough about the US tax laws. Your 401(k) and your IRA balances both will transfer to your spouse or a named beneficiary, just as an annuity would. They all bypass probate, too, so that's a non-advantage. They each expose the decedent's estate to the potential of estate tax. So no real differences between annuities and retirement accounts, except in your mind.
"And so on and on"? There is no "on and on". There is only one thing you did not state, which is really the primary advantage of an annuity over an IRA or 401(k) plan, and the reason a person might want to rollover their retirement or stock account balances to an annuity (fixed, indexed, or variable, according to their objectives and risk tolerance -- none of which you really discuss, although you allude to it).
And that's the guarantee of principal to the beneficiary if the contract has not been annuitized. It's most valuable in variable annuities, which carry the real risk of loss of principal. If the annuitant dies, the insurance company guarantees not less than the full value of the purchase premiums, less any withdrawals or partial surrenders, will be paid to the beneficiary. It's not the same as life insurance, because it's a taxable event, but it is definitely different than the potential loss in a 401(k) or IRA due to market declines.
But that's all it is . . . it's different. If the market never declined, the 401(k) and the IRA, if fully invested in the stock market, would outperform the indexed annuities (due to rate caps and participation rates or spreads) and even the variable annuities, because the cost of owning mutual funds is lower than the cost to be invested in the insurance company's separate account. And investing in Exchange Traded Funds (ETFs) is usually a lot lower than investing in mutual funds, and generally have some additional advantages.
Once you've been sued for misrepresentation, maybe you'll get a clue. Maybe not.
But, you and other agents like you were very nearly responsible for Indexed Annuities becoming a regulated product in 2011 just like variable annuities have always been, and would have required a securities license to be able to offer them to the public.
Personally, I'm glad they weren't because they are not a security, but it's only the volatility of the stock market in the past ten years which has given rise to the indexed annuity. In the normal course of the stock market, VAs would be a far superior choice, because you can actually get "all of the upside" (less contract and separate account management expenses) without a participation rate or rate cap limitation. And, yes, it comes with unlimited downside risk.
But investors who stay the course in the stock market -- who don't retreat when the market does -- generally outpace all other forms of investments over the long term, from gold to diamonds. Anything can have a good couple of years.
Posted: Mon Dec 10, 2012 09:30 pm Post Subject:
TRY TO NOT ATTACK ANYONE FIRST OF ALL.
WHAT I HAVE LEARNED AND I AM LEARNING IS FROM PEOPLE WHO HAVE BEEN DOING THIS FOR 25+ YEARS ON THE FIELD.
The way that You are replying back and discussing these information I assume you are from a CAPTIVE company which leaves in box life and have NO CLUE about other products. or maybe you are one of those agents that is not exposed to a product beside what you are offering.
I have seen clients that have an Annuity and withdraw money and they are younger than 591/2.
IRAs , 401k, and annuities they fall in the same categories (tax deferred). but we do have annuities that fall in tax advantage category.
i AM RELLY CURIOUS TO KNOW WHAT KIND OF PRODUCT DO YOU OFFER TO YOUR CLIENTS, BECAUSE APPARENTLY WHATEVER I AM SAYING (IT'S FROM INSURANCE COMPANY BROCHURE AND FROM BOOK)YOU ARE SO AGAINST IT.
WHAT IS THE BEST PRODUCT THAT CAN FIT SOMEONE THAT HAS A 401K OR AN IRA??
Posted: Mon Dec 10, 2012 10:11 pm Post Subject:
I have seen clients that have an Annuity and withdraw money and they are younger than 591/2.
But have you seen their income tax return the following year, when they paid the 10% penalty to withdraw money from the annuity? Probably not. And how much was the surrender charge they paid? I've seen surrender charges as high as 30% (in all fairness, the last one like that was about 5 years ago)! Anyone can take money out of an annuity any time, all you do is call the insurance company. That doesn't make it "free".
TRY TO NOT ATTACK ANYONE FIRST OF ALL.
WHAT I HAVE LEARNED AND I AM LEARNING IS FROM PEOPLE WHO HAVE BEEN DOING THIS FOR 25+ YEARS ON THE FIELD.
I'm not "attacking" anyone. If you feel attacked it's because I'm challenging you to understand the product you are being told / taught to sell. But if what you write is what you have learned from people who have "been doing this for 25+ years", you either aren't listening to what they say, don't understand what they're saying, or they are all lying to the people they talk to. (I suppose it could be a combination of the three.) And we really haven't had indexed annuities to sell for more than about 10-12 years.
I assume you are from a CAPTIVE company
Hardly! Although I have been a captive agent at times since 1980. If anyone sounds like a captive agent, it's you.
they fall in the same categories (tax deferred). but we do have annuities that fall in tax advantage category.
Please feel free to explain the difference, if you can. I'd very much like to know what you think it is.
WHATEVER I AM SAYING (IT'S FROM INSURANCE COMPANY BROCHURE AND FROM BOOK)
That's exactly what I thought. And do you believe everything you read in the National Enquirer, too? Of course the insurance company is going to tell you how they want you to sell their product. That doesn't mean its 100% accurate. Or if it's 100% accurate, you may not understand it 100% correctly. Did you ever stop to think about that? I see lots of insurance company marketing materials, and some of it is pretty crappy stuff.
I've also seen and taught hundreds of newly aspiring agents who were told (or heard) things about their life insurance which was absolutely not true. At least not the way they explained to me that it was explained to them. Everyone has a different level of understanding. Experience counts for something.
But the statement, "Practice makes perfect," is not true. "Perfect practice make perfect" is. If what you or anyone is practicing is not perfect, you will learn it imperfectly. You will go on to explain it to others imperfectly. And they will have an imperfect understanding of the product you sold them until something happens and they discover it doesn't work the way you told them. Will they be mad at me? No, they will be mad at you. Trust me, you don't want anyone to be mad at you. You want everyone to love you. When they love you, they give you referrals to friends, coworkers, and family. They keep you in business.
YOU ARE SO AGAINST IT
This is where you make a big mistake. I think the current crop of indexed annuities are mostly pretty good products -- certainly better than we had available just three to five years ago. Some are definitely better than others, and some shouldn't be sold to anyone. And some of the problems I've known about for the last couple of years, because of the things I read -- which are not company brochures -- are now coming into the open. Like insurance companies that can't fulfill some their promises.
I am not against Indexed Annuities in the least. But I understand them and how they work. You don't . . . at least not yet or not fully. I know this because of the mistakes you write.
Indexed annuities have a place right alongside variable annuities, fixed annuities, market value adjusted annuities, and both qualified and nonqualified retirement plans. No one product or plan is best or better than another. That's what you need to learn. Each product fills a particular niche.
You cannot use one product to fill all niches equally . . . that will definitely get you -- and your clients -- into trouble.
i AM RELLY CURIOUS TO KNOW WHAT KIND OF PRODUCT DO YOU OFFER TO YOUR CLIENTS
That, too, is faulty thinking. My clients are not your clients, and what I offer my clients may have absolutely no application to what your clients need. I thoroughly interview my clients (takes at least 60-90 minutes) and do a complete financial analysis (takes another 3-4 hours, minimum), using custom forms and spreadsheets I have designed to gather data and illustrate their situation, and to show where I believe I can help them the most . . . whether it's a plan to get out of debt, to fill a need for life insurance, to save more money for retirement, or a combination.
But when it comes to annuities, I'm sure I have a very different philosophy than you do. I don't talk to most folks about annuities at all unless they are already maximizing their retirement plan contributions and still need to find more ways to save money in a tax-advantaged way. Then we can talk about annuities.
Or the discussion of annuities might come up if I'm talking to someone who is already retired and might need a consistent, predictable stream of income. But, before we go down the road of filling out an application, I make sure they are away of every possible disadvantage in the contract. I spent 75% of my time focusing on those, not on the advantages. If my client is OK with the disadvantages of the product, the advantages will be just fine. One or more indexed annuities are likely to be discussed.
If they don't like the disadvantages, we have to look to something else, like a fixed annuity. That's part of the discussion of risk tolerance that you may not yet understand.
Posted: Tue Dec 11, 2012 01:10 am Post Subject:
Sisan,
Let me join Max in pointing out that you don't know what you are talking about. It's quite evident that you are brand new in the business and you don't know what you don't know. This lack of knowledge on your part is going to hurt your clients and possibly have negative implications on you.
Sisan, you have a product that you are trying to sell to a client. You are doing this backwards. You need to find a client or prospect and find what's best for them.
There is nothing wrong with indexed annuities when they make the most sense for a client. More often than not, they are not the best product. That is not a negative against the product. We can say that about most products.
If you want to truly understand indexed annuities, the first thing that you must understand is that indexed annuities are simply fixed annuities with a different crediting method. If a fixed annuity is not appropriate for a specific situation, it is doubtful that an indexed annuity is appropriate.
If you believe that indexed annuities are somehow better than other products, you don't understand them. They are different. They are not better. Sometimes they are appropriate. More often, they are not.
Way to go, Max!
Posted: Tue Dec 11, 2012 01:19 am Post Subject:
A fixed index annuity (also referred to as an equity indexed annuity) provides you with the best features of a traditional fixed annuity - a guarantee of principal. Unlike most securities or mutual funds where your account balance can fluctuate due to market performance, premium deposited into a fixed index annuity is guaranteed to never go down due to market downturns. A contract owner of a fixed index annuity participates in market-indexed interest without market-type loss.
Fixed index annuities can provide you with a guaranteed income stream with the purchase of a fixed index annuity. You have the ability to choose from several different annuity payment options.
With nonqualified plans, a portion of each annuity payment represents a return of premium that is not taxed, which reduces the income tax on your annuity payments.
Posted: Tue Dec 11, 2012 02:32 am Post Subject:
Compared to the writing style Sisan has used when he posted prior to this one above, this is obviously plagiarized from one of those company brochures he's been reading. Nothing wrong there, except it leaves the impression that the annuity value cannot go down. And that's wrong.
If the annuity has been loaded with riders that offer to provide a lifetime withdrawal benefit or conversion of the annuity benefit to a long term care benefit (before the contract is annuitized), or some other added feature, every year that the index is negative, if the guaranteed interest rate is 0%, and no additional premium is added, the value of t he contract will be lower at the next anniversary, courtesy of the cost of the riders and other internal expenses that are not as easily observed when the interest rate is in positive territory.
Nothing above answers the questions I asked Sisan to answer just above these last two.
Posted: Tue Dec 11, 2012 05:48 am Post Subject:
I really don't know what you're arguing about , the fact that I Said that rolling over the 401k to annuity is an alternative for the clients???
Annuities are not working with stock and mutual funds and the clients don't go through the stress and frustration of losing their assets in the market same as what happened in 2008,
They are different type of products for different clients. I do spend 2_4 with client 2 sessions to understand their needs and circumstances so there fore since I AM NOT a captive agent , I work with over 40 different companies which gives me the opportunity to offer different product to my client based on their needs.... Ans course I do go through pros and cons of the product and we know
nothing is 100% perfect thre is always a catch to every good thing.
Go watch the 401k fall out video in YouTube may you will get a better understanding.
If you think that the brochures from insurance company are lie than Idk what to say to yours!!!
Apparently you got your lic decades ago , product change ans people need change as well, upgrade Ur information and stop selling that expensive term insurance. To Ur clients ....
Posted: Tue Dec 11, 2012 09:32 am Post Subject:
Sisan,
People with knowledge can answer questions. People without much knowledge can only regurgitate information. Why won't you answer Max's questions?
Here's a question for you, Sisan. With an indexed annuity, like all fixed annuities all of the money is in the general account of the insurance company. Long term, how can the insurance company afford to pay more to people with indexed annuities than to people with traditional annuities?
The answer is that long term, they can't. Indexed annuities will ultimately end up with similar returns to traditional fixed annuities. If you don't recognize this fact, you don't understand what you are selling. This isn't a criticism of the products. It is just recognizing the products for what they are...fixed annuities with a different crediting method. Changing the crediting method doesn't magically give the insurance company the ability to pay out more money.
As for working with 40 companies, so what? You can work with 100 companies and if all the products that you sell are insurance products, you are incapable of doing what is best for your client in most situations. That's because the question isn't one of whether ABC has the best annuity for my client vs. DEF, it is whether the product is best for the client.
Be honest with yourself. You are telling us that you work with 40 companies, but isn't the reality that you've only sold products from closer to 2 different companies?
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