5. Returns
Edelman puts this plainly: “The low interest rates offered by fixed annuities don’t require elaboration. And the returns of variable annuity subaccounts are reduced by the fees mentioned earlier.” I agree 100 percent. What’s the point of using a tax-deferred account if you’re going to negate those benefits by tacking on large fees that take a chunk out of your returns? If you use the low-cost, flat-fee IOVA, however, tax-deferral can increase returns by 100-200 bps every year—without any additional risk. Add that up over 20 or 30 years, and it makes a significant difference to your income in retirement.
6. Early Death Protection
Investors want to make sure their families are financially secure in the face of an unexpected accident; therefore putting some kind of insurance in place is a wise choice. During the accumulation portion of an annuity—i.e., before you start to take withdrawals—your account will be passed to a beneficiary if something happens to you. We agree, if your focus is on the death or longevity benefit, there are other investment options out there that make more sense, such as life insurance or an immediate annuity. However, if your focus is on helping clients accrue the most wealth for their retirement during the accumulation phase, than the low cost IOVAs designed to take advantage of tax deferral may be your best option.
7. Longer Life Expectancy
Humans are living longer, which poses an issue for annuity companies that must fulfill their promises of continual payouts as more contract holders live longer and collect more distributions. However, as more people are living longer, they are also delaying retirement, which means more time for your tax-deferred investments to grow. We purposefully designed our IOVA to maximize every benefit that a tax-deferred wrapper offers during the accumulation phase so that advisors and their clients are put in the best position for planning for retirement.
As Mr. Edelman outlines, annuities have often become a burden on investors—with expensive riders and long lock-up periods—rather than the tax-deferred wealth generators that they were originally intended to be. It’s true, annuities aren’t the right fit for every case. But as IOVAs continue to evolve, the power of a low-cost, flat-fee tax-deferred investment vehicle shouldn’t be understated or lumped in with poorly-designed products that muddy the waters of the industry as a whole. We would happily welcome any questions from Financial Advisor magazine readers who are looking to help their clients who are unsure of how to navigate the annuities world—please feel free to call our dedicated Advisors Sales Desk at 866.667.0564.
Laurence Greenberg is president of Jefferson National, innovator of the industry’s first flat-fee investment-only variable annuity with the largest selection of underlying funds, which was recently named in Barron's list of Top 50 Annuities for a third consecutive year. For more information, please visit www.jeffnat.com or call 1-866-WHY-FLAT (866-949-3528).
Important Disclosures:
Variable annuities are investments subject to market fluctuation and risk, including possible loss of principal. Your units, when you make a withdrawal or surrender, may be worth more or less than your original investment.
Variable annuities are long-term investments to help you meet retirement and other long-range goals. Withdrawal of tax-deferred accumulations are subject to ordinary income tax. Withdrawals made prior to age 59½ may incur a 10% IRS tax penalty. Jefferson National does not offer tax advice. Annuities are not deposits or obligations of, or guaranteed by any bank, nor are they FDIC insured.