Many advisers believe that the traditional 4% withdrawal rate for retirement planning is no longer a given in the wake of the recession, increases in longevity and other current concerns. Retirement planning is not a one-size-fits-all process, they say.
Instead, advisers want to consider a variety of options as they create a comprehensive plan that fits each client's financial and life situation. And among those options is The Ameritas No-Load VA with Guaranteed Lifetime Withdrawal Benefit 2 Rider (Ameritas NLVA with GLWB2) issued by Ameritas Life Insurance Corp. and underwritten by Ameritas Investment Corp.
An Ameritas NLVA can have several advantages, including:
• No-load means that costs are usually lower than a traditional annuity , which can mean more money can go to work for the client.
• There is no withdrawal charge and no penalty for canceling the policy at any time. (Gains are taxed as ordinary income, and additional penalties may apply to withdrawals before age 59½.)
• The GLWB2 rider, if elected for an additional charge, means that there is a guaranteed minimum return of 5% toward the calculation of the future withdrawal benefit, no matter what the market does. If the market performs better than the guaranteed level, the portfolio will benefit from that higher return.
• With the purchase of a Joint Spousal Option, the benefits can extend over the lifetimes of both spouses.
• The annuity includes a death benefit, which can help provide needed funds to the client's loved ones.
Advisers say they find variable annuities especially helpful with two kinds of clients. The first is the client who needs to get back into the stock market in order to meet overall investment goals but is leery of doing so.
“A lot of people are emotional after 2008-09 still, and maybe those people are sitting with $100,000 to $200,000 in cash, and they are earning nothing,” says Todd Foster, principal at Total Investment Management in Scottsdale, Ariz. “It might be a way to say, 'OK, listen. We have to get into the market. At least we have a backstop here with a guaranteed return. But if the market keeps doing well, we're going to capture the upside of the market.' For someone like that, it might be very appropriate.”
Ryan Bladen, a financial adviser and vice president of UMA Financial Services in Salt Lake City, also uses variable annuities to help ease people back into the market. He says VAs can offer a strategy for “those clients who are unwilling to get back into the market. They are not as eager to take on equity risk as they were pre-financial crisis. ... There are still plenty of skeptics out there.”
Such a client might be “someone who needs the growth potential of a balanced portfolio – 60% stocks, 40% bonds -- but they don't want to take that risk,” he says. “The trade-off (with a VA) is that they have to pay a little bit more for a guarantee, but to capture the upside potential, that's what it takes.”
Bladen also uses VAs with GLWB to provide an income floor for clients who are concerned about outliving their money.
“There is no question that longevity risk is probably the biggest fear that clients face,” he says, adding that one way to protect against longevity risk is to add a VA with GLWB to a client's Social Security payments.
“We go through a bottom-up analysis of their expenses in retirement. Everything can be categorized into essential or discretionary,” he says. “Once we have determined what their fixed expenses are, then we will invest enough in a GLWB to make up the gap between the floor expenses they have and what Social Security provides.”
Of course, the benefits from the variable annuity do not adjust for inflation, he notes. However, Social Security does and, since Social Security usually makes up more of a client's monthly guarantee, “the majority of that (floor expense money) is with a cost-of-living adjustment.”
In addition, he says, “Typically if we get a lot of inflation, stocks are probably the best hedge against that long-term.” And having the security of a guaranteed payment “makes clients feel better about having other funds in the market, because they know they have a certain amount that they can never outlive. So it can complement a more traditional market-only approach,” he says.
To see how the Ameritas NLVA with GLWB2 might work for your clients, consider the hypothetical case of a 60-year-old male who is rolling over an IRA valued at $250,000 into the Ameritas NLVA and elects the GLWB2 rider.
He does not begin withdrawals until he reaches age 70½; because this is a qualified plan, he is required to begin withdrawals then. He invests in the Calvert VM Moderate Growth Model; investors with the GLWB2 option can choose from the VM Growth Model, the VM Moderate Growth Model or the VM Moderate Model.
Even assuming a gross rate of return of 0%, this hypothetical client still could take an annual withdrawal of $21,379, because of the GLWB2 rider's guaranteed rate of return for the annuity.
An annual withdrawal of $21,379 translates to about $1,782 a month. The client can add that to any other predictable monthly retirement income, such as Social Security. Obviously, this is not sufficient income by itself to fund a comfortable retirement. However, it can be the basis upon which to build.
If your clients know that they will have a certain amount of income every month in retirement, no matter how long they live, they might feel more comfortable being somewhat more aggressive with other parts of their retirement portfolio.
Bladen says that many of his clients are physicians, and he uses a familiar analogy when explaining the potential benefits of the VA with GLWB approach. “Sometimes we'll say: It's like a scalpel,” he says. “It's a tool.”
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To learn more, contact Ameritas Advisor Services at 800-255-9678 option 3 or visit ameritasdirect.com
Ameritas No-Load Variable Annuity (Form 6150) and optional rider, Guaranteed Lifetime Withdrawal Benefit 2 rider(Form GLWBRVA 3-12) are issued by Ameritas Life Insurance Corp. and underwritten by affiliate Ameritas Investment Corp. Calvert investment options are managed by Calvert Investment Management Company Inc., an affiliate of Ameritas Life, and distributed by Calvert Investment Distributors, Inc. member FINRA, a subsidiary of Calvert Investment Management.Variable annuities are suitable for long-term investing, particularly for retirement, and are subject to investment risk, including possible loss of principal. The GLWB2 rider is available only at time of policy issue.
Before investing, carefully consider the investment objectives, risks, charges and expenses, and other important information about the policy issuer and underlying investment options. This information can be found in the policy and investment option prospectuses. Read the prospectuses carefully before investing. Prospectuses are available at ameritasdirect.com or by calling 800-255-9678.
Guarantees are based upon the claims-paying ability of the issuing company and do not apply to the investment performance or account value of the underlying variable portfolios. Withdrawals are taxed as ordinary income and withdrawals prior to age 59½ may be subject to additional penalties.
PF 654 ed 10-14:
Total Investment Management and UMA Financial Services are not affiliated with Ameritas Life or Ameritas Investment Corp.
