Non-qualified money investment for seniors

[RunnerDude]

I have a 69 year old client with $95,000 in non-quallfied money, $10,000 in a mutual fund account and about $200,000 in 401(k) accounts. He wants as much guranteed income as possible for he and his wife. I can do a SPIA for the qualfied money, but not sure how to use the $95,000 non-qualfied money for this purpose. Any suggestions?

 

[Allen Trent]

I have a 69 year old client with $95,000 in non-quallfied money, $10,000 in a mutual fund account and about $200,000 in 401(k) accounts. He wants as much guranteed income as possible for he and his wife. I can do a SPIA for the qualfied money, but not sure how to use the $95,000 non-qualfied money for this purpose. Any suggestions?

isnt South Carolina under the NAIC best interest annuity regulations? if so, go slow with this case to truly find the product that is in the best interest for the client.

maybe connect with an Annuity IMO to offer some options of not only SPIA but also fixed index annuity with lifetime income riders. NQ money or qualified money can be placed in either product, but will need separate policies for each type of money. If money is still truly in 401k, it would have to be rolled into a Traditional IRA account type, but you first need to determine if their 401k plan has any options for lifetime income as the best interest laws require you to figure that out.

Lastly, unless they have other emergency liquid money someplace else, you likely can utilize the mutual fund money to combined with the NQ money to turn it into illiquid SPIA income

 

[Tahoe Ray]

You can do a SPIA for NQ money as well or any indexed product w/ a lifetime income rider. AIG's Assured Edge will sometimes generate even more income than a SPIA (fixed product w/ a lifetime income rider).

Your main issue is no suitability department is going to let you put all of someone's money in an annuity. You're going to be limited in this regard and probably need some type of exception if you want to go over 50-60%.

Also, be careful giving any advice regarding selling a security. Show your client all of his options and let him decide how to fund it.

Good luck!

 

[RunnerDude]

Thanks for the advice. You are correct, South Carolina is under the NAIC best interest annuity regulation laws. I also failed to mention that, between the two spouses, they are currently receiving $5,000 in social security benefits. I was thinking that the social security income would cover the suitability requirements. He just wants another $1,000 to $2,000 in guaranteed income because of the looming possibility that taxes will go up in the future- and also fearful of another stock market crash.. Since I am fairly new to annuties and IUL's, I am working with an experienced annuity advisor. He recommends a SPIA for qualified money- but the client wants to do something with the $105,000 of non-qualified money as well. Just looking for ideas.

 

[Allen Trent]

Thanks for the advice. You are correct, South Carolina is under the NAIC best interest annuity regulation laws. I also failed to mention that, between the two spouses, they are currently receiving $5,000 in social security benefits. I was thinking that the social security income would cover the suitability requirements. He just wants another $1,000 to $2,000 in guaranteed income because of the looming possibility that taxes will go up in the future- and also fearful of another stock market crash.. Since I am fairly new to annuities and IUL's, I am working with an experienced annuity advisor. He recommends a SPIA for qualified money- but the client wants to do something with the $105,000 of non-qualified money as well. Just looking for ideas.

I dont believe the 5k per month of SS will impact the suitability of making most or all of their currently liquid assets illiquid. there needs to be "enough" money still liquid for emergencies & $5k of SS income wont solve a $20k or $50k lump sum need in some suitability items.

Also, just because your annuity advisor tends to like SPIA wont always cut it. I like SPIA too, but in some cases, the client could be as good or better off with an Annuity with an income rider that provides the same or more guaranteed lifetime income while potentially still retaining some liquidity that wont be the case in a SPIA.

Lastly, be careful on pushing more income on someones tax return if it isnt needed for budget items. While it can be a great strategy in some situations, you could be exposing the client to owing income taxes on 50% or or 85% of their SS income that they may not currently owe. Also, you can expose the client to having to pay more for their Medicare as Medicare premiums are income based.

Example, my father in 2019 had a 1 time jump in his income of $25,000 from cashing in a NQ annuity with a deferred gain (wouldnt have mattered if the $25,000 was qualified or wages from Walmart,etc) . He owed nearly $10,000 in additional taxes that year because the $25,000 caused $12,500 of his SS checks to be taxable & bumped him into the next income tax bracket. So, he owed nearly 40% in net taxes on the $25,000 because the same $25,000 was taxed & caused 50% of his SS to be taxed, so he was really taxed on almost $38,000.

Best interest rules might even suggest you have the client ask their tax preparer the impact of putting another $1,000 to $2,000 in additional income on his tax return

 

[Tahoe Ray]

Thanks for the advice. You are correct, South Carolina is under the NAIC best interest annuity regulation laws. I also failed to mention that, between the two spouses, they are currently receiving $5,000 in social security benefits. I was thinking that the social security income would cover the suitability requirements.

You still won't be able to do 100% of the money, regardless of the income. If their roof blows off and they have no liquidity and insurance won't cover it (for some reason), they'll be really stretched.

Select the carrier that you're going to use then run it by suitability and see what they'll accept. If that's not enough, then ask for an exception. If that gets denied, go to the next best carrier and see what they say.

Rinse, repeat. If you get the same answer half a dozen times, at least you know where you stand.

And like I said, there are some other fixed products out there (besides the SPIA) that depending on the wife's age, could also be considered.

Good luck.

 

[sarabb]

It will be a good idea to convert this $ 95,000 non-qualified money into liquid money. I also heard about such a situation with a man, and I recommended that he read about liquid net worth, and finally, this helped him a lot. To inform you, liquidity can convert an asset into cash quickly and without losing money against the market price. That's amazing, he will never lose that money, and till the end, this amount of money will be qualified.