Updated Sunday, August 30, 2015 as of 10:01 AM ET

Should an Annuity Be Annuitized?

Some financial planners are upbeat about variable annuities while others avoid them. However you feel about variable annuities, there’s no doubt that they’re ubiquitous: Morningstar reports that VA net assets reached a record $1.87 trillion at year-end 2013. Chances are that some of your clients hold VAs, including contracts acquired during a prior advisory engagement.

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Comments (1)
With total fee's for variable annuities now at 3.5% to some over 4% when you add up the M&E, portfolio fee, living benefit fee, death benefit fee, and roughly 50% of the companies have a hidden 12b1 fee, and some even still have an annual $30 to $50 annual maintenance fee ... you can do better for your clients with a (SPIA) immediate annuity for income now and a (DIA) deferred income annuity for the income in the future.

It is incorrect to say they are based off of 10 year treasury rates as they are based off of mortality credits. We use these products daily. A current 55 year old female would get a 7.25% lifetime payout with an installment refund if she deferred it for 5 years until age 60. If she deferred it 10 years she would get a 9.49% lifetime payout at age 65. Also for non-qualified annuities that are annuitized there are tax advantages for their net income due to the exclusion ratio. A variable annuity with a living benefit pays out all gains first which if fully taxable and can be very confusing to the client.
Posted by Anthony K | Tuesday, August 12 2014 at 2:27PM ET
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