Although it wasn’t a great first quarter for annuity sales, which declined 27% in the first quarter according to the Insured Retirement Institute, there was some good news for annuity vendors: Variable annuity (VA) sales grew 3% for the same year-to-year period.
In the right circumstances, VAs offer solid benefits, and several advisors describe scenarios in which they would consider recommending a variable annuity (VAs) to clients.
Lowering income Taxes
Jamie Milne, CFP, of Milne Financial Planning in St. Johnsbury, Vt. has recommended VAs’ tax-deferral benefits to a client who is well into the maximum federal and state tax rates.
Milne notes that anything he can do to reduce taxable income in future years for clients with an effective marginal tax rate of 45 percent or more becomes a priority. For those clients, variable annuities are a good way get the tax deferral and keep the potential for future growth.
Calming Jittery Investors
Some clients are extremely risk-averse, says Mark A. Ziety, CFP with Shakespeare Wealth Management, Inc. in Brookfield, Wis. They consider high yield bank accounts a great savings vehicle because they can’t lose money in them.
The problem, as Ziety points out, is that savings accounts are not a solution for clients in their forties with limited incomes who are behind in saving for retirement. Although they need exposure to the markets, their anxiety over potential losses prevents them from building sufficient retirement assets.
For clients like this, Ziety believes that using a variable annuity with a living benefit rider could give them enough peace of mind to put some money in the market. It’s not a perfect solution, he notes, because when the contract and sub-account expenses are included, variable annuities can be quite expensive.
But if the alternative is parking everything in cash, variable annuities with living benefits are one of a few strategies to help the nervous investor get in the market and stay the course.
Saving Above Contribution Maximums
If a client is in the maximum income tax bracket, has contributed to all retirement type accounts available to him or her and has cash that he or she will not need until retirement, variable annuities can and do make sense, says Debbie Frazier with Frazier Financial Consultants in Chapel Hill, N.C.