Will fixed indexed annuities continue their sales hot streak?

In 2013, fixed indexed annuities may have felt a bit like the wallflower that finally got asked to the prom. After years in the shadow of their more popular peers, variable annuities, fixed indexed annuities started to rack up record sales as 2013 came to a close. Meanwhile, variable annuities slipped in sales and were left to shuffle their feet at the punchbowl, waiting for more dance partners. Perhaps too much can be read into quarter-by-quarter peaks and valleys in sales, and VA sales dipped only slightly, but the question the industry may need to monitor in 2014 is whether fixed indexed annuities can still capture the fancy of retirees and pre-retirees haunted by past market crashes, especially if interest rates rise and the stock market recovers further

Indexed Annuities As An Alternative To Bonds

December 11, 2013 by Chris McDonald                 

The old standby for retirement income – the traditional bond-equity mix – could have a new contender: the indexed annuity (IA) with guaranteed minimum income benefits rider. With inflation rising, interest rates ticking up and equities perched at all-time highs (and a possible correction looming), a portfolio that swaps bonds for IAs could be a safer alternative, according to a new analysis.

Research by Dr. Wade Pfau, a professor of retirement income at the new Ph.D. program for financial and retirement planning at The American College in Bryn Mawr, Pa., found that an IA with a 30-year inflation-adjusted income rider outperformed other product allocations — including bonds, variable annuities (VAs) and single premium immediate annuities (SPIAs) — at a 4 percent assumed inflation rate. Offering greater flexibility and inflation-adjusted income, these new and improved IAs could be the perfect solution for baby boomers, who consistently have bristled at the very thought of giving up control of a considerable portion of their retirement in a traditional annuity.

Pfau’s research is captured in “Mitigating the Four Major Risks of Sustainable Inflation-Adjusted Retirement Income,” a white paper he co-authored with Rex Voegtlin, a Certified Financial Planner with more than 25 years of experience. The four risks, as Pfau and Voegtlin explain them, are equity sequence of returns, bond-yield sequence of returns, longevity risk and sequence of inflation. They modeled the efficiency of equity/bond portfolios in the current interest rate environment and the efficiency of portfolios that substitute VAs, SPIAs and IAs for bonds.

The co-authors concluded that a retiree potentially may align his retirement income to mitigate the four major risks of sustainable inflation-adjusted retirement income through investing 100 percent of his retirement assets into a state-of-the-art IA. The models showed that replacing bonds with a SPIA solved three of the four risks – the risks of equity sequence of returns, bond-yield sequence of returns and longevity risk. Meanwhile, the state-of-the-art IA solved those three risks, plus the fourth, which is the sequence of inflation risk.

And inflation likely will be a major factor in the portfolios of the soon-to-retire. The authors assert that more than a few economists view inflation to be a significant future risk to retirees who currently own bonds. After hovering at historical lows for years, interest rates finally are trending upward.

And, as we know, rising interest rates are the enemy of bonds. If you own a bond and interest rates go up, the value of that bond on the open market, with few exceptions, will go down. Those of  you with money under management have probably noticed your bonds losing value already.

Recently, we saw U.S.-based bonds post outflows of $6.94 billion in one week amid fears of rising interest rates. It’s reasonable to expect that interest rates will continue to move upward, as they are still well below historical average and way below historical peaks.
So where do you move that bond money? More equities? Here’s where taking a glance at history helps.

Think of the years 1901, 1929, 2001 and 2008. What do they have in common? When reflecting on bear markets, we tend to focus on the events that triggered the market downturn: a bad housing market, political unrest, droughts, bank failures – each market downturn can be traced to a different trigger. But one consistent condition has preceded market downturns across the decades: high price/earnings (P/E) ratio.

Now, take a look at the current Shiller Cyclically Adjusted Price Earnings (CAPE P/E) ratio, an excellent tool to help determine if stocks are too expensive. As of press time, stocks on the Shiller CAPE were trading at 23.6 times earnings, compared with the long-term average of 16. That’s still far below the all-time high of 44.2 in 1999, but it still means stocks are expensive right now. And if you look at a historical chart of the Shiller CAPE P/E, over time you see all the major market downturns were preceded by a high P/E ratio.



If you’re looking for a link between high P/E and lower bond yields, it’s this: much of the money flowing out of bonds will likely make its way into the equity markets, pushing prices even higher.
What event will trigger the next recession? How quickly will interest rates rise? No one really knows. But a catastrophic event can make you fall a long way if you’re already perched on a ledge.

According to Pfau’s research, investing part of a client’s portfolio in IAs may be the solution to the colliding forces of rising interest rates and an overpriced market. Even if equities and bonds are your go-to favorites, remember that IAs can be a third-door option – so you aren’t leaving yourself out in the cold.

Current competitive state-of-the-art IAs:
·         Allow emergency access to remaining principal
·         Link your income to inflation (consumer price index) for up to 30 years
·         Turn income streams off and on
·         Don’t cap earnings
·         Continue to be risk-pooled

The retiree electing an IA often gives up a little initial guaranteed income potential but gains the possibility of higher market-linked retirement income, especially for those who experience longevity in retirement.

Chris McDonald is a senior marketing coordinator at Senior Market Sales, a national insurance marketing organization. Chris may be reached at Chris.McDonald@innfeedback.com.

               

What will save retirement? It likely won't be the rebound in equities and housing

By Emily Holbrook

December 3, 2013 

Will the recent rebound in the stock market and housing prices be enough to save the nest eggs of those in the workforce?

According to the Center for Retirement Research (CRR) at Boston College, it may help, but not very much. Individuals will still need to work longer and save more. In a report issued today, "Will the Rebound in Equities and Housing Save Retirement?," the CRR takes a look at the National Retirement Risk Index (NRRI) and finds that, as of 2010, even if households worked until age 65 and annuitized all of their financial assets, 53 percent were still at risk of not having enough money for retirement. 

Since 2010, both the stock market and the housing market have made gains (45 percent and 6 percent, respectively). That fact, however, does little to help retirement savings. CRR states this is so because the increases in house prices have been modest and the growth in the equities market mainly benefits the top third of households. 

Essentially, CRR is saying that the reitrement landscape in 2010 was no better than it was in 2007. In fact, it may be worse. 

"The most obvious reason is that while stocks are slightly higher than their pre-crisis peaks, house prices are still substantially lower in real terms than in 2007," the report states. "And the house is a much more significant asset than stock holdings for most households, making trends in house prices a major influence on the NRRI results."

CRR points to two other factors that are also depressing the NRRI: Social Security's full retirement age and the decline in interest rates.

So what can we make of this? Today's retirement landscape seems to be no better than 2007 or 2010.

According to CRR, the fundamental message is that "half of today's working-age households are unlikely to have enough resources to maintain their standard of living once they retire."

Therein lies the mantra we've been hearing since the financial collapse: Work longer and save more. 

Dear Ma, Dear Pa: Welcome Back ... Watch Your Back

Investing

By Roben Farzad November 25, 2013

 “The markets can remain irrational longer than you can remain solvent.”
—John Maynard Keynes (supposedly)

“Be greedy when others are fearful and fearful when others are greedy.”
—Warren Buffett

“Past performance is not necessarily indicative of future results.”
— Fidelity, T. Rowe Price (TROW), J.T. Marlin Securities, et al

Interpolated somewhere among these maxims is the angst and avarice of diving back into the market now, following a 200 percent total return from the lows nearly five years ago. For better or worse, it seems as if Mom & Pop are back, my colleague Charles Stein reports. The handful of you keeping score at home know that the Dow Jones industrial average just cracked 16,000—paging Brian Williams and Scott Pelley—with stock funds taking in just under $175 billion in the first 10 months of the year, their most since the fateful year 2000. This comes after a good half-decade period that can perhaps best be described as the Great Evacuation from equities. And it comes as bonds, the beneficiary of a fetish-like $1 trillion of inflows during said Evacuation, clinch their first annual loss since 1999.

What happens if this all this fickle money comes as a deluge back into the market? Is it all necessarily a sell signal? Jeremy Grantham, chief investment strategist at Grantham Mayo Van Otterloo & Co., warned clients in a letter last week of a “third in the series of serious market busts since 1999.” BlackRock (BLK) chief Larry Fink, who lords over $4 trillion in assets, predicted this month that stocks may fall as much as 15 percent due to political risks in China, Japan, France, and the U.S.

Story: This Market Is Going Higher, Warns Jeremy Grantham

“I’m pretty modest,” volunteers Joshua Brown, a New York-based financial adviser at Ritholtz Wealth Management who blogs as the Reformed Broker. “But I predicted this.” He says investors have been down for so long that people forget that the investing masses were buying throughout the 1980s and ’90s. “People making more than they can spend, with, say, 40 years of living ahead of them—they are supposed to be buying stocks, not plowing $1 trillion into bonds. This is what they’re supposed to do, and it’s not reflexively indicative of a mania.”

Indeed, based on historical patterns, Mom & Pop’s reunion with stocks may not be as bearish a contra-indicator as widely believed. According to Investment Company Institute numbers going back to 1984, annual equity mutual-fund flows turned positive in 1989, preceding market gains in eight of the next 10 years, and in 2003, after which the Standard & Poor’s 500-stock index rallied for more than four years.

Still, the Obama bull run has left investors as a group with an unusually high allocation to equities, at 57 percent, according to Vanguard, the world’s largest mutual-fund company. Equity exposures were higher only twice in the past 20 years: during the dot-com-bubbled late 1990s and just prior to the 2007-2009 global financial crisis.

So you can pretty much bend the stats to the contours of your worldview—bullish, bearish, or meh.

In the interest of full and fair disclosure, and before the Securities and Exchange Commission comes knocking, I’m divulging what may have just been a Joe-Kennedy-shoeshine-boy moment: Both Mom and my mother-in-law asked me about shares of Tesla (TSLA), which have soared 265 percent this year.

Be scared, Elon Musk. Maybe even very scared.

 

Indexed Annuity Sales Break Second Consecutive Sales Record

 

Pleasant Hill, Iowa. November 15, 2013- Forty-two indexed annuity carriers participated in the 65th edition of Wink’s Sales & Market Report, representing 98.4% of indexed annuity production. Total third quarter sales were $10.0 billion. In reviewing third quarter indexed annuity sales, production was up more than 9.0% when compared to the previous quarter, and up more than 15.0% when compared with the same period last year. “It seems I’ve been preaching about how valuable these products are for 15 years, and people are finally starting to get the memo!,” exclaimed Sheryl J. Moore, President and CEO of both Moore Market Intelligence and Wink, Inc. She added, “Many companies made positive changes to their products in the third quarter, and we had a number of fire sales being offered as well. If you think this quarter was strong, wait until the close of 2013.”

Noteworthy highlights this quarter include Allianz Life persisting in their position as the #1 carrier in indexed annuities with a 12.91% market share. Security Benefit Life and American Equity also maintained their positions as the second and third-ranked companies in the market; Great American and Aviva round out the top five, respectively. Security Benefit Life’s Total Value Annuity was the #1 selling indexed annuity for the fifth consecutive quarter.

For indexed life sales, 48 insurance carriers participated in Wink’s Sales & Market Report, representing over 95.1% of production. Third quarter sales were $328.0 million. When evaluating third quarter indexed life sales, results were down more than 2.0% when compared with the previous quarter, and up more than 1.0% as compared to the same period last year. Ms. Moore commented, “It is amazing that indexed life sales are only down slightly; three of the more prominent companies in this market had significant declines this quarter.” She remarked, “However, outsiders aren’t going to stop their fascination with indexed life as a potential product line, with year-to-date sales being up more than 13%. In fact, we have additional carriers that are slated to enter the market within the coming quarter.”

Facts worth noting in the indexed life market this quarter included Pacific Life Companies maintaining their #1 position in indexed life sales, with a 13.51% market share. Aegon moved-up to become the second-ranked company in the market, while AXA Equitable, National Life Group (LSW), and Minnesota Life rounded-out the top five companies, respectively. AXA Equitable’s Athena Indexed UL was the #1 selling indexed life insurance product for the 12th consecutive quarter. The average indexed UL target premium reported for the quarter was $6,684, an increase of nearly 16% from prior quarter.







For more information go to www.LookToWink.com

The staff of Moore Market Intelligence has combined experience of nearly three decades working with indexed insurance products. The firm provides services in speaking, research, training, product development, and marketing of indexed annuities and indexed life insurance. Their knowledge in product filing research and policy forms analysis, coupled with their unmatched resources in insurance distribution, give them the expertise to provide competitive intelligence that allows carriers to stay ahead of their competition.

Sheryl J. Moore is president and CEO of this specialized third-party market research firm and the guiding force behind the industry’s most comprehensive indexed life and indexed annuity due diligence tools, AnnuitySpecs andLifeSpecs distributed by Wink, Inc. Ms. Moore previously worked as market research analyst for top carriers in the indexed life and annuity industries. Her views on the direction on the indexed market are frequently heard in seminars and quoted by industry trade journals.

Ms. Moore is the author of the quarterly Wink’s Sales & Market Report. Serving as the insurance industry’s #1 resource of indexed insurance product sales since 1997, this report provides sales by product, company, crediting method, index, distribution, surrender charge period, and more. The report is formerly known asAnnuitySpecs.com’s Indexed Sales & Market Report, which had been rebranded this year under the company name Wink, Inc.
 
A lot of wise people are putting some of their safe money in annuities at this time while the wall street casino continues to score higher and higher numbers. There are some interesting indexing systems that deliver a constant stream of increasing values, and guaranteed income for the rest of your life with no downside losses due to market fluctuations. It's the reason people are scoring well in the annuity columns. If you are interested, don't hesitate to call Warren Strycker tollfree at 1-866-334-1200 or email wstryckeraz@yahoo.com.

Will The 3.8 Percent Obama Care Surtax Apply To Me?

Who could get hit with the surtax? A successful business owner who has a good year in 2013 and ends up making over $200k who earns interest or dividends on his investment account. Or a couple with good salaries who both worked hard and get bonuses which put them over the $250k adjusted gross income mark in the same year they sell an investment property.  With the Affordable Care Act, they would both be hit with the surtax.

 

 While it is widely written that the Obama Care surtax doesn’t apply to the majority of people, if it does apply to you that means you have already paid high income taxes or capital gains taxes and now are going to be hit with an additional 3.8% tax on your net investment income.  It is hard enough these days to actually have an investment gain.  With interest rates so low to have actual investment income to report, this surtax is like pouring salt in the wound of people who have finally made a profit in a brutal economy.  You certainly don’t want to be caught off guard and be forced to pay additional taxes if you don’t have to.

While it is not in effect now it is right around the corner. The surtax will be in effect January 1, 2013 and applies to taxpayers with an adjusted gross income of over $250k ($200k if single).  This could be you if you have a high income and:

• You have investment income,
• You sell investment property and make a profit that is taxed as a capital gain,
• You sell your primary residence and have a capital gain — over and above the exclusion amount of $250K if single or $500k if married,
• You sell investments that incur significant capital gains.

What the tax includes:
A 3.8% tax on unearned income which includes interest, dividends, capital gains, annuities, rental income, etc. and applies to those with adjusted gross incomes is over $250k if married or $250k if single.  One thing to note is it is the lesser of net investment income or excess adjusted gross income over the threshold.

Here is an example:
If you are single and your adjusted gross income is $280,000, then the excess over $200,000 would be $80,000 ($280,000 minus $200,000). Assume for our example that your net investment income is $75,000. The new 3.8% tax applies to the smaller amount. In our example, $75,000 of net investment income is less than the $80,000 excess over the AGI threshold. So the 3.8% tax is applied to the $75,000 and you would have to pay an additional $2,850 for the Obama Care surtax.

If this applies to you then you have paid substantial income taxes already at that income level so if you want to avoid the surtax, here are some possible strategies:

1)      Don’t sell appreciated property or investments in 2013.  Sell by the end of the year in 2012 to avoid the surtax since it takes affect on January 1, 2013 or simply wait to sell.  Congress has a lot of work to do with the expiring Bush tax laws.  If you don’t need to, simply wait it out to see if that provision gets repealed.

2)      Do an exchange. If you were planning on selling real estate, do a 1031 exchange instead. Exchanging one like kind property for another does not incur a capital gain in the current year; your basis is transferred to the new property.  That said, it does not specifically state in the Obama Care law that the surtax does NOT apply to exchanges.  But since exchanges are not subject to capital gains taxes, it is reasonable that they would not be included. Consult your tax advisor for their opinion.

3)      Harvest your losses to reduce your capital gains. It was never more important to harvest any losses to reduce gains with the surtax.  If you do plan to sell securities in 2013, be sure to minimize your taxes by offsetting the capital gains by taking your capital losses in the same year.

4)      Defer income or gains in the year you sell.  Another way to avoid the surtax is to fall below the income threshold.  Some ways to do that are to max out pre-tax deductions in your 401(k), defer current income with deferred compensation, and delay your bonus (if your employer allows this) to 2014 instead of taking it in the current year.  Work with your tax advisor to determine ways to reduce your adjusted gross income in 2013.

5)      Reduce taxable dividend income. If your interest and dividend income is triggering the additional tax, shift your investments to tax exempt vehicles such as whole life or universal life insurance, or tax exempt municipal bonds. Cash value life insurance policies earn dividends and gains in the policy but aren’t reported each year on your tax return. You can borrow funds from the policy to withdraw tax free income or withdraw up to your basis.  It is only when you cash in the policy or take a withdrawal over and above your basis do you trigger income taxes. 

Tax exempt municipal bond interest is reported on your taxes but doesn’t add to your adjusted gross income unless you are subject to the alternative minimum tax and that’s another story. 

The surtax might not affect everyone but if it does affect you, it is a steep one. The fact is the surtax is a tax over and above the taxes you have already paid. It makes sense to avoid it if possible. It’s tough enough to earn a return these days – 1% on a CD and close to zero percent interest on Treasury Bills!  Paying an extra 3.8% in this investment environment is a tough sell.  This surtax is real and you should plan around it if you can.

Nancy L. Anderson, CFP ® is Resident Financial Planner at Financial Finesse, the leading provider of unbiased financial education for employers nationwide, delivered by on-staff Certified Financial Planner™ professionals. For additional financial tips and insights, follow Financial Finesse on Twitter and become a fan on Facebook.

Financial Planning Can Be Scary For Investors

November 1, 2013 by Cyril Tuohy                 

Fear Factor?

Defunct television shows aside, advisors say that many people are paralyzed when it comes to financial planning.

But are people scared because they don’t have a financial plan? Or do they not bother making plans because they are scared?

“It’s a combination of both,” said Kenneth A. Moraif, senior advisor with Money Matters, a financial planning firm in the Southwest. “People are scared, and I think that’s a good percentage of people who have not created a financial plan. Another large percentage feels they don’t have enough money or are overwhelmed by bills.”

About 14 percent of respondents to a recent survey sponsored by Nationwide found that creating a plan is simply too overwhelming.

Investor fears, said Michael Spangler, president of Nationwide Funds, are “legitimate and overwhelming, which is why you get this set of responses.”

But where do advisors go from here?

Moraif’s counsel is for advisors to stop beating people over the head about how they are not saving enough.

“We’re taught in planner school to have clients do a budget and then see where you can cut,” he said in an interview with InsuranceNewsNet. “That’s a wasted exercise.”

Moraif said that slashing budgets one item at a time isn’t effective. He said that investors will spend on the goods that they want. He said that, instead of a what-can-you-go-without strategy, investors would be better off cutting down on the frequency and volume of certain purchases. Advisors can help investors formulate a strategy that is more proportionate to their income.

For example, they could choose to go to the movies three times a month instead of four.

Funnel the difference into a retirement account, even if it’s $100. “If you do less of it, you don’t notice as much when you cut back, then you build on that,” Moraif said. “Then you go from $100 to $200 a month. You start small.”

The Nationwide survey found that one of four respondents does not have a financial plan. Survey respondents raised the usual objections to not setting enough money aside: Their assets are too low and advisor fees are too high.

A separate survey by Wells Fargo found that 69 percent of Americans in their prime retirement savings period between 40 and 59 years old don’t have a financial plan. For some, the future no longer even includes retirement.

Those with a plan say they have saved a median of $63,000, or 32 percent of their goal, while whose without a plan have only saved a median of $20,000, or 10 percent of their goal, according to the Wells Fargo Middle Class Retirement study. Both those with a plan and those without one say they will need a median nest egg of $200,000 for retirement.

“This data so clearly shows what a difference a retirement plan makes, in that people who have a plan have saved three times those without a plan have saved,” Laurie Nordquist, chief of Wells Fargo Institutional Retirement and Trust, said in a statement.

Other surveys point to an enduring irony about finance and planning: the less people plan, the more scared they are; and the more scared they are, the lower the incentive to plan. A 2011 survey by Financial Engines, an investment advisory firm based in Palo Alto, Calif., found that fear about the financial future inhibits investors.

In an interview with InsuranceNewsNet, Spangler said advisors need to “acknowledge those fears are real and legitimate,” particularly in the wake of the financial crisis during which many investors saw an evaporation of wealth.

But much of the losses have recovered, and the stock market this year is way ahead of its long-term average.

Spangler said advisors should dispel the idea that advice necessarily costs a lot of money. Then they need to explain to investors’ what their likely future needs are going to be in “terms they can understand,” Spangler said.

Spangler said that fear and risk can’t be completely eliminated. But he also said that advisors should explain how they can lessen the impact of down markets and recover.

He said that the sooner advisors do that, the better off investors and their families are likely to be. The Nationwide survey found that there is time to make significant improvement in the management of assets and planning for retirement. Only 1 percent of those not working with an advisor said that it was too late to work with an advisor, the Nationwide survey found.

Lifetime income benefits propel indexed annuity sales

By Maria Wood

October 30, 2013 • Reprints

Share on linkedin        

When it comes to the feature that’s helped seal the deal most often in the past year, an overwhelming majority of fixed indexed annuity (FIA) sales pros cite guaranteed lifetime withdrawal benefits (GLWBs). Yet, looking toward the future, those same specialists say fixed indexed annuities that offer a combination of benefits will see a rise in sales.

Those findings came to light in a recent survey sponsored by Phoenix Companies Inc., which was conducted at the National Association of Fixed Annuities (NAFA) summit earlier this month. The firm canvassed more than 100 insurance marketing organization professionals, carrier executives and independent agents.

When asked what feature over the past 12 months was the “must have” ingredient for agents to sell an indexed annuity, 70 percent pointed to GLWBs, far ahead of the next most popular option, a choice of combination benefits (11 percent). Death benefit protection, principal preservation income riders, alternate index strategies or indices, premium bonuses and stacked roll-up riders each balloted at 6 percent or less.

Yet, when asked what feature or features would take on greater importance in the coming year, GLWBs still came out on top at 37 percent, but a combination of benefits moved up to 25 percent. Other popular choices included alternate index strategies or indices (11 percent) and principal preservation income riders (10 percent).

Mark Fitzgerald, national sales manager for Saybrus Partners, Phoenix’s distribution subsidiary, explained in a release detailing the survey results that while lifetime income remains a top priority for consumers and advisors alike, other preferences, such as accumulation and chronic-care benefits, are taking precedence as well, leading to the prediction that combination annuity products stand to increase in value.

What clients want
NAFA attendees were also polled on what their clients expressed a desire for when considering an annuity purchase, thereby shaping product design. Here again, the results nearly mirrored what the industry insiders voiced. The “need for guaranteed income in retirement” was picked by 62 percent of the respondents, followed by the “need to address multiple needs with one product,” cited by 24 percent. Third up was the “need to maximize their nest egg through accumulation products,” the choice of 10 percent.

 

Use Annuities As A Tax Shield: CPA

October 23, 2013 by Linda Koco                 

Time was, before the era of the feature festival in annuities, agents and advisors used to present annuity options based on the client’s tax needs.

According to Jeffrey Levine, certified public accountant, this may be the time to return to that strategy. Anytime there is an increase in taxes, “we’ve got to look at re-evaluating our tax strategy,” he told a workshop at the recent annual meeting of National Association of Insurance and Financial Advisors (NAIFA) in San Diego.

A lot of people do not realize it, but many Americans could see higher taxes in 2013, said the individual retirement account technical consultant with Ed Slott and Co. That is due to changes in the tax code that are going into effect this year.

Annuities as a tax play

Tax increases might be the incentive that advisors need to go back to using annuities “strictly as a tax play,” instead of just for the benefits and riders, which Levine said has become more of the norm in recent years.

In 2013, he explained, there will be four income calculations that wealthier clients will need to make. Depending on the outcome of those calculations, a client could be facing higher taxes than expected.

In brief, the four calculations Levine mentioned are:

1)      Taxable income.  Clients could be subject to the 39.6 percent top income tax rates after doing the calculation for taxable income, he said. That top income tax rate kicks in if the client’s taxable income is more than $400,000 for single filers, or more than $450,000 for marrieds filing jointly.

The taxable income is the amount that remains after taking out itemized deductions and personal exemptions, both above and below the line, the CPA said. A client could have gross income of $600,000 but after calculating deductions and exemptions, the taxable income could be much lower.

2)      Adjusted gross income. In 2013, Levine said, personal exemptions and itemized deductions will begin to phase out. The phase-out will be based on adjusted gross income (AGI), not taxable income, he pointed out, noting that this calculation does allow for deductions of things like IRAs and student loans but not for itemized deductions. In addition, the threshold for phase-out begins at $250,000 for single filers or $300,000 for marrieds filing jointly, so it’s different than for the taxable income calculation. The calculation for this needs to be done separately, he said.

3) and 4) Health care surtaxes. The threshold for two health-related surtax calculations is the same as for the AGI calculation ($250,000 for single filers or $300,000 for marrieds filing jointly). “But you have to calculate income in two different ways to get there,” the CPA said.

A 3.8 percent surtax (related to Medicare)applies to people who have a modified adjusted gross income (MAGI) above the threshold; for most clients, the MAGI will be the same as the AGI, he said.  A 0.9 percent surtax, also related to Medicare, has the same income threshold as the AGI calculation but “you need to calculate this based on earned income,” Levine said, pointing to use of W-2 income tax amount and self-employment income—not AGI or MAGI.

Most clients are clueless

Most clients have no idea about the thresholds and other taxes that are coming in this year, Levine said.

“They don’t realize that adding just one dollar of income might equate not just to putting them into a higher tax bracket; it might also cost them their deductions and exemptions, and it might throw them into a 3.8 percent health care surtax.”

The great thing for advisors is that they have many tools at their disposal to help clients, Levine said. The tools include wealth conversion and annuities.

Advisors who work with annuities can use the products to smooth out a client’s income, he said. For instance, advisors can use the products to “shield” from taxes not only the income that would otherwise be subject every year to taxes on interest, dividends or capital gains, but also from taxes related to the 3.8 percent surtax.

Non-qualified annuity distributions are subject to the surtax, he added, but that doesn’t happen until the client takes the money out. And that usually doesn’t happen until retirement, when the client’s income might be lower, he said.

Hence the incentive to consider using annuities for tax planning, Levine said.

Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

If you were born poor...it's not your mistake.

Whether you follow Don Trump or not, you would have had to be really out of it to miss his Twitter remarks this week: "If you were born poor, it's not your mistake. If you die poor it's really your mistake."

Trump's other remark today also bears some consideration: "I try to learn from the past, but I plan for the future by focusing exclusively on the present. that's where the fun is."

Whether you agree with Trump is not as important as the provocative "stick it in your eye" issue of what the young does with the future these days -- which is probably some more important than whether the current political environment plans to take care of them in the end.

Based on what this government is going to do for the elderly, the young should pay attention. How you prepare for retirement will make a big difference in the way you celebrate it.

The phrase Generation Y first appeared in an August 1993 Ad Age editorial to describe teenagers of the day, which they defined as different from Generation X, and then aged 12 or younger as well as the teenagers of the upcoming ten years.^[6] Since then, the company has sometimes used 1982 as the starting birth year for this generation

It appears that the recession has walloped the youngest, least experienced workers the hardest. They have the highest unemployment rate AND the highest rate of educational attainment (and school loan debt), which leaves them much worse off as they start out than their parents were in the Boomer Generation. Even if their parents were in Generation X, they were still better off than today’s 20-something Millennials.

Having said all of that, the 80/20 rule still applies. Twenty percent will survive well, 80% won't. That rule is pretty well established over time, or such has been said consistently.

Given that at least some of the millennials are into the 30 year old group, some of them, believe it or not, are already thinking about retirement, if not much.

Here's an idea. Let's start thinking about a financial plan other than up the risky ladders at the wall street casino -- something with some meat in it -- and little or no risk -- something that can be gained with little money invested. Something that will get our young started into the future early and not after the piggy bank is broken and all the money is gone, spent in "happy for the night" and frivolous and pointless experiences.

Let's say Jayson, a millennial at 29, has no retirement plan yet and no company to leverage his contributions or buy him a life insurance plan to cover his debts when he exits.

Let's also say Jayson has a pretty good job and a little loose change. What can he do with it? If he's paying back college debt, he'll still be able to do this with a little focus on the future.

He can buy an indexed life insurance plan from a reputable company now at $100 per month (or less) and turn that contribution into $200k at retirement, having contributed only $44k himself. The rest is interest and indexing magic with no risk from the ups and downs of the market.

Make sense to the millenials? Not many, you might say. But, some will take the bait and end up in retirement with a sizeable buffer against the incoming tide of retirement.

If not, it will probably be their  mistake and if my hunch is correct, less other people will stand by them as we do now with our elderly as these millennials age into retirement, home equity spent on continuous lines of credit until there is nothing left to finance.






 

Debunking Annuity Objections

 March 30, 2012 by Sheryl J. Moore                 

When I started in the insurance business, I was an indexed life insurance expert. I worked in a home office for years before I even learned what an annuity was. Once I learned that an annuity was just a retirement savings vehicle that provides an income you can never outlive, I wondered: why didn’t EVERYONE have annuities?

It turns out there are folks that have a vested interest in discrediting the annuity. Those that sell mutual funds, stocks, bonds and certificates of deposit (CDs) compete against these annuities for the same retirement dollars being offered by pre-retiree consumers. These individuals are often called on to be media sources and frequently provide garbage objections in an attempt to sway people against annuity purchases.

For this reason, I want to address some of these nonsensical objections below:

“Annuities lack liquidity.”

Have you ever received something in exchange for nothing? Probably not. Likewise, an annuity cannot offer credited interest to the purchaser, without some kind of tradeoff. The insurance company has to make a profit on the annuity transaction too.

Surrender charges, the period when a penalty will be imposed if the annuity owner takes out more than a specified amount of their annuity’s value, provide a disincentive for the annuity purchaser to cash out their annuity early. If the annuity owner withdrawals more than the anticipating amount, the insurance companies’ investments fall out-of-whack.

You see, when an annuity purchaser makes a premium payment into a fixed annuity, the insurance company uses that premium to purchase bonds. Generally, the bonds are high quality and mature at the same time the surrender charges expire on the purchaser’s annuity (i.e., I buy a 10-year surrender charge annuity and the insurance company then purchases 10-year Grade A bonds to cover my annuity’s guarantees). This provides a relatively safe investment vehicle for the insurer to make enough interest off of in order to earn their spread/profit and still credit interest to the annuity.

But note that, like the annuity, there is a penalty for cashing out bonds early. If the annuity purchaser cashes out their annuity prior to the end of the bond’s maturity, the insurer suffers a financial loss from cashing out the corresponding bonds earlier than anticipated. Therefore, surrender charges on annuities merely provide a method for insurance companies to mitigate their risks associated with early withdrawals of the annuity’s value.

It should also be noted that annuities provide a plethora of alternatives for liquidity, above cashing out the contract. Most annuities allow for at least 10 percent of the annuity’s value to be withdrawn each year, without facing penalties. A vast majority of annuities also allow for funds to be accessed without penalty should the annuitant become confined to a nursing home, disabled or terminally ill.

In addition, annuities provide a guaranteed income that cannot be outlived if the purchaser elects to annuitize the contract or commence income payments under an optional guaranteed lifetime withdrawal benefit (GLWB). And did I mention that most annuities pay the full account value to the beneficiaries on death? Facts being what they are, I think we can all agree that the liquidity provisions on annuities are more than fair.

“You shouldn’t use an annuity for your IRA.”

An Individual Retirement Account (IRA) is a type of retirement plan that provides tax advantages for retirement savings. A vast array of products can be used as a vehicle for an IRA: CDs, government bonds, mutual funds and more.

Annuities can be used as the vehicle for an IRA too. An annuity, however, provides tax advantages all on its own. Because of these duplicative tax incentives, some financial advisors argue that it is “silly” to use an annuity as the vehicle for your IRA.

Yet annuities have many benefits that are not offered by the free-standing IRA, much less by CDs, bonds, mutual funds and the like. The guaranteed return-of-principal on fixed and indexed annuities is not to be ignored; such guarantees are not offered in securities products such as mutual funds and stocks.

Want a guaranteed rate of return in addition to your principal? Securities products cannot offer that either. While CDs do offer a guaranteed return, their credited rates are currently averaging a mere 0.34 percent per year! Fixed annuities, on the other hand, offer guaranteed annual interest rates as high as 3.50 percent today.

And what if my primary motivation for purchasing an annuity is to guarantee that I won’t run out of money before I die? An annuity is the only product that can guarantee the purchaser a paycheck for life, no matter how long they live. For this reason alone, it may make A LOT of sense to use an annuity as the vehicle for your IRA.

“Annuities are taxed as ordinary income, once income commences.”

Many argue that annuities are not attractive because they are taxed as ordinary income. This means that once you begin taking money out of your annuity, you are taxed at your regular tax bracket on those funds (currently 10 percent – 35 percent, based on your annual taxable income). Some investments, other than annuities, are taxed at a capital gains tax rate of a lesser (current) 15 percent. If you are in the 25 percent – 35 percent tax brackets, this seems like a big argument in favor of retirement products other than annuities, doesn’t it?

In reality, it is; but only for a minority of our nation. The IRS indicates that nearly two-thirds of the U.S. fell below the 25 percent tax bracket as of 2009. This means that the ‘ordinary income’ argument is only of concern to about 33 percent of our nation. It must not be a concern to the Obama administration; they are exploring the use of annuities to guarantee retirees’ incomes, not other retirement products. With so much uncertainty regarding the future of federal income taxes, nobody really knows what will be ahead for the taxation of all retirement income products.

Regardless, some will never endorse annuities for a single one of their clients; that’s okay. Statistics, however, show that since 1950 there has been a 2,200 percent increase in the number of Americans who are age 100 or older. Today, Americans’ number one fear is outliving their income. That being said, those who don’t embrace annuities will one day live in poverty –trying to scrape-up enough cash for prescriptions, not enjoying their retirement.

Meanwhile, the “annuity haters” can envy those of us that own annuities and have guaranteed income that we cannot outlive. We’ll be happy, not struggling and rocking out every minute of our twilight years.

Indexed Annuities: Back to the Basics

July 31, 2012 by Sheryl J. Moore                 

For years, indexed annuities have provided a strong value proposition to those saving for retirement: guaranteed safety of principal while having the ability to earn limited interest based off of the performance of a stock market index. This must appeal to at least a few people; the insurance industry has experienced record sales of indexed annuities for four years straight. However, some financial professionals have lost sight of this proposition.

Recent changes in our economy have sent the participation rates, caps, and other rates on indexed annuities on a downward spiral. While the 10-year treasury (a large driver of fixed and indexed annuity rates) was floating above 5.00 in 2007, today it is barely hovering around 1.70. This relates directly to the attractiveness of rates on indexed annuities. Annual point-to-point caps on the products averaged upwards of 7.00% five years ago, where today these same indexed crediting methods are averaging a paltry 3.13%. This dramatic change has a lot of insurance agents asking, “How can I make a sale on a product that may receive zero interest, but no greater than 3.13%?”

It is absolutely true that indexed annuity rates are the lowest they have ever been today. Although there is a product with caps as high as 8.05%, there are many products with caps as low as 1.00%. I am not going to underplay the difficulty of making the sale of this product, as compared to the same product five years ago. However, I believe that we as an industry are “psyching ourselves out.” Psychology tells us that these products are now “unattractive,” and has us asking “who would buy a product with such low rates?”

Let me tell you who. How about the young worker who’s only alternative is the 0.58% that he is currently earning on his savings account? Perhaps the pre-retiree who has the bulk of her retirement dollars just sitting and earning 0.45% interest in her checking accounts? What about the little old lady next door, who has nearly a million dollars earning just 0.33% in certificates of deposit? Your parents? They just bought some Series EE savings bonds that are earning 0.60%. They could have purchased Series I bonds, but they are crediting a miniscule 0.00% with an inflation component of 1.10%.

The bottom line is that rates on indexed annuities may be crummy today, but they are relatively competitive as compared to other vehicles that provide guarantees and protection of principal.

Today, people are looking for safety. Thanks to extreme declines in the stock market in the years 2000 and 2008, too many savers have lost the bulk of their retirement nest eggs. While they could get this with a fixed annuity, they would only average 2.06% credited interest today. This isn’t bad compared to other fixed money instruments. Of course these savers want the ability to earn interest on their retirement dollars too. However, if they want those double-digit returns of yesteryear, they are going to have to compromise the safety feature, and risk losing money in a product such as a variable annuity.

The number one fear of Americans in 2011 was speaking in public. This year, it is outliving one’s retirement funds. That is no surprise since so many people lost so much money in 2008 AND people are living much, much longer today. In fact, there are 53,000 Americans today that are aged 100 plus; there were only 2,300 in 1950. A recent article indicated that the first person to live to age 150 is already walking the earth today! And wrap your head around this- the same reputable news magazine that provided those statistics indicates that Americans will have the ability to live forever within the next 20 years as a result of our medical advancements and the possibility of “growing” any human organ. With pensions disappearing and our nation’s social security system in limbo, people are looking for solutions to ease their fears.

Annuities are the only financial instrument that can provide a guaranteed income that you cannot outlive. Yes, they provide tax deferral, and the ability to earn additional interest. However, it is the guarantees offered by fixed and indexed annuities that resound so heavily with savers today.
Don’t psyche yourself out. There are products that can provide guaranteed preservation of principal, guaranteed protection from market losses and a guaranteed income that they cannot outlive.
 

The 'lost generation' of retirement planning

By Michael K. Stanley

October 4, 2013  

Despite dour prognostications regarding baby boomers’ retirement preparedness post financial crisis, a recent research report finds that there are other segments of the population who are in deeper trouble when it comes to retirement planning — like Millennials.

In its third annual research report on the state of U.S. employee retirement preparedness, Financial Finesse, an unbiased financial education company that offers counseling programs, found that Millennials have a significant risk of not being able to achieve retirement security.

With just 17 percent of Millennial employees surveyed stating that they anticipate being able to retire with 80 percent of their income goal, there is ample need for concern. Although baby boomers had the curveball of the financial crisis thrown at them as they were approaching retirement, Millennials will have to deal with myriad other issues that may pose an even greater challenge.

Systemic issues, such as rising health care costs and a possibly insolvent Social Security system will acutely impact Millennials. Couple that with the fact that many Millennials can expect to live longer than older generations and the prospect becomes even more unsettling.

Drawing a link between the generation that arrived home after World War I only to have to contend with the difficulties of a shifting cultural, political and financial climate, the research paper invokes “lost generation” when discussing the retirement challenges Millennials face.

The report finds that 87 percent of Millennials are saving for retirement through their employer-sponsored retirement plan, which the research suggests can be attributed to the fact that many employers utilize an automatic enrollment strategy. The concern is that Millennials could be taking a “set it and forget it” approach to retirement planning which could give them a false sense of security.

The report cites a Mercer study which found that individuals in automatic enrollment retirement plans defer on average 3.5-4.4 percent of their income into their plan compared to 7 percent of individuals who proactively contribute. Millennials are a generation, the report points out, that use automation to pay their bills, and similar systems could work well for them when it comes to retirement planning, but it would behoove them to take a more proactive approach.

The report also identified other groups who are at risk when it comes to retirement preparedness, among them, women and lower-income employees.

Just 17 percent of women surveyed were confident that they would be able to reach their income-replacement goal in retirement — an increase from 13 percent in 2012 — but still a number far too low, the report warns. Due to the fact that, on average, women both live longer and earn less than men, they need to make retirement preparedness a top priority.

Lower-income employees, defined in the report as those with total annual household income of $60,000 or less, experience setbacks in retirement preparedness compared to the previous year. A lesser percent reported:

Participating in 401(k) plans — 84 percent in 2013 compared to 86 percent in 2012;

Feeling confident in their retirement income-replacement goal — 10 percent versus 11 percent in 2012; and

Having calculated a retirement projection plan, 33 percent compared to 36 percent last year.

On a positive note, the report found that the overall state of retirement planning among employees has improved since 2011.

 

Enhanced Index Allocation for Allianz Preferred Just Launched

          In addition to traditional fixed index annuity (FIA) benefits such as tax-deferral, lifetime income and a death benefit for beneficiaries, Allianz Life Insurance Company of North America (Allianz) just announced the launch of a new index allocation option offering an additional choice for retirement accumulation available exclusively through the Allianz Preferred SM platform.  This exciting new feature was created for consumers approaching retirement that are looking for a managed volatility option.

How does it work? In general, when the S&P 500® volatility is low, the balance shifts more toward the S&P 500®. But when volatility is high, the balance shifts towards the Barclays Capital US Aggregate Bond index. Basically, the index does the work of shifting between equities and bonds, so you don't have to!

2 exciting features of the Barclays US Dynamic Balance index include:

1. Uncapped Strategy with a spread - The index has an annual point-to-point crediting method that has a spread and no caps.
3. Daily Rebalance - The Barclays US Dynamic Balance Index dynamically allocates daily between the two indexes, based on their historical realized volatility.

This index allocation option is exclusive to Allianz fixed index annuities; no other insurance carriers currently have access to the index. So, I have an exclusive opportunity to offer you a new strategy that my competition may not have access to.

The Barclays US Dynamic Index allocation is just one of several index options offered on Allianz fixed index annuities to make annuities more exciting in a dangerous financial market.

Seniors let Life insurance policy lapse; Why they shouldn't.

In a survey conducted by ICR, 55 percent of seniors have allowed their life insurance policies to lapse, viewing it as a liability instead of an asset.

According to a release, further, more than 80 percent of adults aged 66 and over were not aware that they can sell an existing life insurance policy for a cash payout.

The survey uncovered that for 24 percent of respondents the reason they first bought life insurance has changed, and anxieties about paying for long-term healthcare still weigh heavily on seniors as two-in-five are concerned they will not be able to pay for long term medical care during their retirement years.

“The results indicate that a large segment of the senior population allows their life insurance policies to lapse and receive nothing in return,” said Wm.Scott Page. “We have always known that lapse rates were high, but this new data proves that hundreds of thousands of seniors who are eligible for life settlements are not taking advantage of the financial option.”

A life settlement, is the sale of a life insurance policy for less than its face amount, but for more than the cash surrender value. The buying company pays the remainder of the policy premiums and collects the full benefit when the policy seller dies. Often a settlement provides five to eight times the amount offered if the policy was surrendered back to the insurance company.

Read through this flyer and then the qualifying flyer to see how your policy is valued. Click the flyers for enlargements of images.

 

Record Indexed Annuity Sales Top Previous Record by 5%

September 17, 2013 by Annuity Outlook

 

Originally Posted at Annuity Outlook Magazine on September 16, 2013 by Annuity Outlook.

 

Wink, Inc. Releases Second Quarter, 2013 Indexed Sales Results

 

Pleasant Hill, Iowa. September 16, 2013– Forty-two indexed annuity carriers participated in the 64^th edition of Wink’s Sales & Market Report, representing 99.8% of indexed annuity production.

Total second quarter sales were $9.2 billion. In reviewing second quarter indexed annuity sales, production was up more than 17.0% when compared to the previous quarter, and up more than 5.5% when compared with the same period last year. “This was a record-setting quarter for indexed annuity sales, beating the previous third quarter 2010 record by nearly 5.0%!” exclaimed Sheryl J. Moore, President and CEO of both Moore Market Intelligence and Wink, Inc. She added, “Even year-to-date sales increased 1.5% over this same period, last year. What a great position for these products to be back on the uptick!”

Facts worth noting this quarter are that Allianz Life maintained their position as the #1 carrier in indexed annuities with a 13.62% market share. Security Benefit Life and American Equity also maintained their position as the second and third-ranked companies in the market;  Great American, and EquiTrust rounded-out the top five, respectively. Security Benefit Life’s Total Value Annuity was the #1 selling indexed annuity for the fourth consecutive quarter.

Guaranteed Lifetime Withdrawal Benefit (GLWB) utilization rebounded in the second quarter, while additional experience data pointed to trends in rider elections and income commencement. Moore pointed-out, “This quarter marked a record for GLWB elections, with 67.3% of all indexed annuities sales opting to purchase the benefit (when available). The vast utilization of these benefits, and their income commencement, continue to show varied results that provide further insight into our nation’s needs for guaranteed lifetime income- remarkable!”

For indexed life sales, 48 insurance carriers participated in Wink’s Sales & Market Report, representing over 95.2% of production. Second quarter sales were $336.7 million. When evaluating second quarter indexed life sales, results were up more than 1.0% when compared with the previous quarter, and up more than 12.0% as compared to the same period last year. Ms. Moore remarked, “We had yet another impressive quarter for indexed life sales. Plus, year-to-date sales of indexed life also skyrocketed nearly 20.0%! She went on to comment, “Last quarter, I anticipated that sales of IUL would increase exponentially once new companies’ distributions were comfortable with their product. It is nice to see that now our most recent entrants in the IUL market have gotten their ‘toes wet,’ that their efforts are translating into to sales.”

Items of interest in the indexed life market this quarter included Pacific Life Companies taking over the #1 position in indexed life sales, with a 13.73% market share. AXA Equitable moved-up to become the second-ranked company in the market, while National Life Group (LSW), Aegon, and Minnesota Life rounded-out the top five companies, respectively. AXA Equitable’s Athena Indexed UL was the #1 selling indexed life insurance product for the ninth consecutive quarter. The average indexed UL target premium reported for the quarter was $5,770, a decline of nearly 50% from the prior quarter.




For more information go to www.LookToWink.com
The staff of Moore Market Intelligence has combined experience of nearly three decades working with indexed insurance products. The firm provides services in speaking, research, training, product development, and marketing of indexed annuities and indexed life insurance. Their knowledge in product filing research and policy forms analysis, coupled with their unmatched resources in insurance distribution, give them the expertise to provide competitive intelligence that allows carriers to stay ahead of their competition.

Sheryl J. Moore is president and CEO of this specialized third-party market research firm and the guiding force behind the industry’s most comprehensive indexed life and indexed annuity due diligence tools, AnnuitySpecs. and LifeSpecs. Ms. Moore previously worked as market research analyst for top carriers in the indexed life and annuity industries. Her views on the direction on the indexed market are frequently heard in seminars and quoted by industry trade journals.

Ms. Moore is the author of the quarterly Wink’s Sales & Market Report. Serving as the insurance industry’s #1 resource of indexed insurance product sales since 1997, this report provides sales by product, company, crediting method, index, distribution, surrender charge period, and more. The report is formerly known as AnnuitySpecs.com’s Indexed Sales & Market Report, which has been rebranded under the company name Wink, Inc. Wink, Inc. will be the company name that distributes resources such as this sales report, AnnuitySpecs.com, and LifeSpecs.com.

Wink, Inc. is the company that distributes resources such as this sales report, along with the competitive intelligence tools AnnuitySpecs and LifeSpecs. Wink has the same ownership, same people, great service, and unparalleled competitive intelligence, all rebranded under one name, one new dynamic website at www.LookToWink.com.

Annuities: Then and now

By Richard Dobson, Jr.

July 30, 2013             

 

The history of annuities is one of growth and innovation. The original concept evolved from A.D. 222 when Roman scholar Ulpianis was credited with developing the first actuarial table. This progressed into individuals making large payments into an annua, (Latin for annual stipend) to receive annual payments till death or for a specified period.

Roman soldiers were paid an annua to compensate for their service. From then on, into the Middle Ages, society continued to use pools of cash to pay individuals dividends or stipends until death, with the proceeds of these programs paying for wars or public works.

In 1720, the Presbyterian Church in the Americas started providing annuities to its aging ministers and families, likely the first annuities issued in North America.

Today, we see annuities being used frequently for a variety of reasons. Certain annuity products and their complexities present unique challenges to advisors in this day and age, but they also present numerous opportunities to make solutions for the right type of client.

A few of the benefits annuities can provide include safety of principal, opportunity for growth of funds invested with the insurance company, diversification, guaranteed lifetime income and significant income tax advantages. One key additional benefit in variable annuities is the ability to exchange sub-accounts with no current income tax consequences and at low or no cost.

Today’s annuities come from a long road of transformation. I will help shine a light on their evolution and identify some of the advantages that have successfully been used by our firm for more than 35 years to solve specific client goals and objectives.

Annuities past
In 1653 France, under Louis XIV, an Italian banker named Lorenzo DeTonti implemented an investment plan for raising capital, likely borrowed from ancient Rome. The plan involved a lump sum paid by the participant, who would then receive income each year. As participants died, the income to those remaining increased. Then, the last survivors would receive the highest benefit — an early version of mortality credits. Called a “tontine,” this set-up signaled the birth of annuities.

In 1913, the 16th Amendment to the United States Constitution allowed Congress to levy taxes on income. The exclusion that was made for life insurance and annuity products was secured through efforts from the National Association of Life Underwriters (now known as NAIFA). These benefits still stand today, although amended much over the years. The basic premise is that you can accumulate dollars inside of life insurance and annuity products with income tax deferral until the cash is withdrawn for use or paid out as a life insurance death benefit. Some accumulations are distributed tax free.

In the 1950s, U.S. life insurance companies started issuing deferred and immediate annuities. They typically were for large cases and had many fees and charges. In 1963, a company in Philadelphia called the First Investment Annuity Company (FIAC) issued a deferred variable annuity. This “investment annuity” provided tax deferral to any investment that was placed in it. For example, a certificate of deposit, mutual fund or shares of stock could benefit from tax deferral when “wrapped” by the annuity, even if the owner had purchased those accounts or shares years prior. The investment annuity was an immediate hit with advisors across the country, because they saw the advantages of tax deferral for depositors and clients.

The IRS consistently issued more than 70 public and private rulings from 1963 through 1977 that this investment annuity was acceptable within the tax code. However, it wasn’t long before the lack of tax revenue due to this plan’s existence caught the attention of Congress. In 1977, the IRS issued Rev. Rul. 77-85, which was made public law when the Senate passed HR 3477. This immediately closed down investment annuity products. However, through a grandfathering provision, clients had funds in these plans for decades.