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Monday, June 27, 2005

VA Benefits 
No, not Veterans' Administration benefits. I'm talking about variable annuity benefits! And noted Miami financial planner Harold Evensky's having a Road to Damascus moment.

http://www.fa-mag.com/issues.php?id_content=2&idArticle=988



I believe that my first public pronouncement on the subject of VAs was a January 1997 quote in Humberto Cruz’s nationally syndicated column: “Under any rational scenario, the real value of the guaranteed death benefit is negligible.” Never one to hide my feelings, referencing the tax shelter benefits of VAs, I told Business Week in July ’97 that “I’ve run scenarios upside and down and backwards, but it just doesn’t work out. You end up turning gold to lead,” a reference to converting potential capital gains to ordinary income. Finally in September of 2000, I told Bloomberg Wealth Manager, “The only reason to consider buying an annuity is if the agent is your son or daughter.” Pretty strong stuff. In hindsight, I believe my heart was in the right place but my framing was far too narrow.
    Since then, my thinking on the subject has evolved as I studied and learned more (as, I hope, my thinking on all of the planning issues important to my clients continues to evolve). By November 2002, I told Money Magazine “A year ago, I would have washed my mouth out with soap if I said the word ‘annuity.’ Now I believe they can be an important part of retirement planning.” What were the elements leading to my new perspective?


No, he's not a convert or a big annuity fan. He's just coming to accept that VAs may have a role.

Me? I like annuities, actually. But I like them as a risk management tool, and not as an investment tool.

As a risk management tool, they're important, because I don't think investors want to take the risk that they will outlive their retirement stream of income. That's a gamble they can't afford to lose. So it's entirely proper that that risk be transferred to an insurance company, which is in a better position to handle the risk.

As an investment, I hate them, because A.) Their fees are stupendously high (why should it cost more to maintain an annuity wrapper on an account, over and above mortality, than it does to open an IRA?), and B.) I'm not convinced yet that the tax deferral is worth as much as everyone thinks it is, considering that you wind up paying income taxes rather than lower capital gains tax rates.

Yeah, the tax deferral beats your run-of-the-mill, high-expense, high-turnover crappy mutual fund, which jacks up capital gains distributions with every trade and turns its portfolio over every year.

But I think when you compare the tax deferral in a VA to, say, a low-turnover tax-managed index fund, I'm not sure you come up with much of a benefit at all.

Anyone wanna argue different?

Splash, out

Jason

Comments:
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I would have to say that at this point there are two many "variables" (sorry, couldn't resist!) to say for certain. I understand your point, that with current dividend and capital gains taxes being so low, the option of putting it into a lower expense fund may wind up yielding more in the long term than having tax deferred growth and then paying regular income tax on the distributions. I'd actually like to see an estimated breakdown on the potential returns based on different income tax rates for a client. The one comment I would make, and I know that this may be a little simplistic and can apply to tax rates as well, is that we aren't sure how long the dividend and capital gains tax rates are going to stay low-I'm afraid they would be on the chopping block at the next change of administration.
 
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The ultimate internet marketing website is www.TheOnlinePromoters.com
 
I do know of a website about laser back surgery
 
Sweet blog! Do the chickens have large talons? Sorry for Napolean Dynamite quote but I am in a great mood today. Also I love to see blogs that are useful and your blog falls right into that catergory. I took the liberty to add you to my favorites. Hey you might want to do the same for I update my site with new articles and info monthly. Blah, maybe you don�t! Anyways, have a great day and again very very good blog! Many thanks from 100 loan mortgage ortgages second.
 
Nice post. I too have a blog about online paid surveys Please visit it and take a look
 
It's time to take charge of your future and independence by having your own business!
 
The ultimate internet marketing website is www.TheOnlinePromoters.com
 
Well I just got back from the gym and I am beat. I am currently doing some research on second mortgage loan uk and stumbled across your blog. Which cracks me up really. The internet can certainly land you off base sometimes. Even though your blog is not completely related I think it is a cool blog. I have read back through the archives and lots of people make some very good points. Well I have been on-line forever it seems. I need to continue to plug away at second mortgage loan uk. If you have the energy swing by http://www.adjustablerate-mortgage.com. I try to update my site weekly and maybe you will see something you like. I already snagged your URL and put it in my favorites. If you do not mind I will be back again. Great job!
 
I love your blog. How long has it been on-line? Reason I ask is I am doing a ton of work in the area of cheapest home insurance quote uk and will probably end up starting a blog of my own. Funny how the internet brought me here when I was doing searches on cheapest home insurance quote uk. Oh well, I am glad it did. Keep up the great blogging and I am sure I will visit your blog again!!

p.s added you to my favorites take a moment to stop by http://www.homeowner-insurance-quote.com for I update it frequently
 
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I was not sure to expect when I visited your blog. Well I think the information on this blog is great. I have my own blog and I wish I got half as many constructive comments as your blog does. Anyways, I am a teacher at a University and I am always doing research on various topics. This weeks topic relates 100% to your blog. I already bookmarked you for future use. If you want to exchange information I will leave my link at the bottom of this. If you don�t mind I will add my 2 cents to this blog topic once in awhile. Although most of the time I just like to read and see what other people�s thoughts are! (hey I am a teacher!)
Thanks again!instant life insurance policy.
 
The ultimate internet marketing website is www.TheOnlinePromoters.com
 
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