Scroll down for a discussion on A Perfect "Trade In" From An Old Annuity within the Annuities Forum.
Fixed, tax deferred annuities escalated in popularity through the late 70’s, 80’s and 90’s to that multi-trillion dollar savings vehicle of choice that much of ...
Fixed, tax deferred annuities escalated in popularity through the late 70’s, 80’s and 90’s to that multi-trillion dollar savings vehicle of choice that much of America utilizes today for their non-market risk capital. All of the attention given to annuities was largely unexpected. The main allure was tax deferral. Why pay taxes on savings not yet committed to use? Why not elect to pay income taxes on savings only when you spend it? The rationale was simple yet sound. Today, nearly every bank, broker dealer, financial planner, life insurance agent and credit union markets fixed annuities over their own savings programs based on this “pay later” logic.
But, what keeps the insurance company competitive when it comes time to offer the saver a new deal? The answer is simple – a Section 1035 IRC Tax Free Exchange. What is this annuity ownership right and how can it be utilized most effectively in this topsy-turvy 2009 environment? When the surrender charge is over on your existing annuity program the insurance carrier can offer you any rate or any new deal they want constrained only by unacceptable minimums. Without the Section 1035 exchange powers that the owner possesses, that carrier would probably offer you a lousy deal. The saver would then be forced to either stay with the lousy deal or liquidate the annuity and pay all the accumulated income taxes that year. Additionally, the policyholder could elect to take back his savings over several years (every month) but remember the annuity was purchased because “he didn’t need the money”. He does however have a ticket out. The Section 1035 exchange permits the financial adviser to preserve the tax deferred status of the account and exchange without cost or taxes to any other company’s new issue annuity. This is not only what keeps the renewal rates competitive (i.e. not a lousy deal) but it also let’s the savvy financial planner take a fresh look at all of the modern annuity programs that have been designed over the lifetime of that existing annuity.
This begs the following two questions if you have a mature fixed annuity looking for a better deal – Where does the current climate suggest your rollover annuity funds should be placed for the next 5-10 years? And, what is the ideal annuity product design to maximize your tax deferred earnings?
In our 32 years of business there has never been a time (Yes, right now, First Quarter – 2009!) when the investment climate has looked so universally bleak. Normally, when one sector slows down its reciprocal sector accelerates. In short, all of the directions on everything are down. Retail sales were down in December double what was forecasted. Oil hit $35bbl in mid January and they are calling for $30bbl at Goldman Sachs. (It costs $60 a barrel to produce it!) In the field of “technology”, Microsoft has a war chest of cash – but is buying nothing and there are unheard of rumors of huge layoffs. Gold? Gold is down (yes, down) to $815 an ounce with a projected risk range of $200 more downward. The “utilities” have to be doing okay – right? Although citizens do need power, natural gas and water to live as they retreat to the non-spending bunker utility usage is actually being conserved across the board. Meanwhile, interest rates are way, way down and short term rates are low and still going lower. The warnings of a U.S. led global recession commenced in August 2006. Guess what it’s here and the flatter world we now all live in has permitted the brush fire to spread rapidly on a global basis. (Oh, and GDP is also anemically low and contracting with the jobless rate well over 7%.)
Is there any good news in this bleak world as it relates to where to put your money and when to do it? The prognosis looks grim as consumers retrench. But, alas, it is always darkest right before the dawn.
It is now generally accepted that the U.S. economy was already in recession when the September 2008 financial crisis hit. The dislocations of both money and credit markets into now early 2009 are suggesting that we still have a rough year ahead but there are definitely intrinsic signs that the worst is nearly over. Money supply is increasing, the global downward move in commodities comes amid the continued strength in the U.S. dollar and the 10 year note (2% plus yield) is still immensely popular while inflation is almost non-existent.
Peter Richardson, a retired C.I.O. and partner of a revered NYSE firm, opines that the signals he watches indicate that global economic recovery will be commencing soon stocks will rally! The “trend of market short rates, trends of monetary liquidity and money supply, trend of yields of junk bonds and yield quality spreads” all indicate A SHARP FUTURE RISE IN EQUITIES. Secondary indicators are also bullish – positive slope to the yield curve and business earnings are now well below the long term trend line. (Stocks must stop going down before they start going up!) The most likely scenario shared by Bernstein and Morgan Stanley alike (our corporate bankers) is for the U.S. equity markets to bottom March – April of 2009 followed by an upturn in corporate profits by the Fall of 2009 and the first hike in the Fed Funds rate (a harbinger of recovery) by the 2nd Q 2010. All opinions hold the some wild card exception – any erratic excesses caused by the authority (the new Administration).
Remember, the business cycle has behaved similarly for the past sixty years with the only marked difference being the durations of expansion (growth) and recession. Inevitability a long swing back up is…inevitable. Investors should not think of “buying and selling” but of rebalancing in the period where the opportunities all exist in the future periods. That time – at least for equities – is now. “Capitulation” is at the doorstep (all sellers / no buyers eventually leads to no sellers left)…and at that (this) time a good stock’s growth potential is at its highest.
The fixed annuity that you currently hold is entering a window where it is totally liquid. You have a choice to make on changing out or staying in a low fixed rate product. Either retain your status quo and lock in a low rate during a period of historically low yields or rewrite the annuity with the current company and take on a new, multi-year surrender charge schedule in exchange for a slightly better deal or (pay attention)…materially change the investment engine to the growth that is found only in equities. By purchasing The Global Lookback Annuity the annuity holder can position his savings to potentially outpace fixed rates by a very wide margin without risking one penny of principal. The perfect storm of opportunity now exists to cut a far different deal for your safest savings (the annuity). Throughout history, equities have always outpaced fixed rates when given the luxury of time. The stage is set. Your give up is only minimal since the fixed rate you are walking away from is so small. The opportunity, however, is tremendous since the best time to buy U.S. and global stocks is when they are in the very final phases of recession. (And, remember, you are not gambling. There is a 100% principal guaranty on this investment at all times. There is only upside advantage.)
One of the most popular choices for the annuity 1035 Exchange is NWLIC’s Global Lookback Annuity. This is an astounding investment engine that delivers the power of buying into worldwide markets without risking your hard earned savings. Here’s how it works…get ready for upside opportunity withoutany downside risk.
National Western Life, an A (Excellent) rated insurance company domiciled in 1956, has elevated the old fixed annuity to an investment art form. The owner can elect to have someorall of the earnings come from the performances of the four global equity indicies – S&P 500 (U.S.), Dow Jones EuroSTOXX 50 (Europe), Nikkei (Japan) and Hang Seng (Asia). Every year the performance is calculated by averaging for each month’s close. At the end of the year, all four performances are ranked from top performer to second, third and fourth. After the ranking (and this puts the power in the engine) the performances are weighted – 40% of the top performer, 30% of the second place finisher, 20% of number three and only 10% of the last place finisher. (It’s like placing a bet on a horse race after the race has been run!) And, remember, the credited earnings can never be negative after the weighting – so, no risk!
So, the perfect storm of opportunity exists right now – during what others are perceiving to be the worst of times. However, there is a better and more efficient way to get on board with equities this time. You can now invest in stocks with a triple advantage - “lookback weighting”, tax deferral and a 100% principal guarantee. For annuity rollover consideration (or if you just have some fresh cash lying around) NWLIC’s Global Lookback Annuity receives our highest recommendation.
Re: A Perfect "Trade In" From An Old AnnuityGo to Top
Originally Posted by Charpress
Probably no such thing as a one moving part annuity. Maybe a MYGA, but I doubt that as well depending on how you define moving part.
I think most people define one moving part as only one of the following can change Cap, Particpation Rate or Spread. Most will have as an example 100% Particpation Rate, No Spread and a Cap that won't be lower than X%. The cap can change but the other factors can't. A few products like the one listed above can change 2 things meaning both your particiaption rate and cap can increase or decrease at any renewal (Not that I have ever seen any increase off hand...). So you could have say 30% Participation and a 6% cap as an example.
Re: A Perfect "Trade In" From An Old AnnuityGo to Top
I think there are many more moving parts, at least the way I define them. Let's not forget market value adjustments (MVA).
A moving part is any part of an annuity contract that is hard to follow and can be used by the company to screw the customer if the part is not fully understood going in. "Sorry mate, your dad turned on income under our rider and that eliminated the death benefit" sort of thing. Or, "Sorry, your 20% bonus is over in this bucket and that is not the bucket you chose to take your money out of." Or, "Sorry, our contract does not exclude your required minimum distribution from our definition of 'penalty free withdrawal' so you will lose your guaranteed minimum return that we talked about as being party of your income rider."
You can also get into "fine print" issues that are moving parts like minimum contract values, death benefit provisions, contract guarantees in general, ways to access money (liquidity), under what circumstances a bonus is vested (up front, back end, actually vested for real 1 point per year like Allianz does in one product), --anyway, these (and many, many more) are moving parts as far as I am concerned.
A Perfect "Trade In" From An Old Annuity
Linear Mode
