We are all familiar with the “Rule of 72.” You know, we can find out how long it will take for an amount of money to double at a certain interest rate. Example: if a financial instrument will earn 6%, you divide 6 into 72 and the money will double in 12 years. Simple… right? Well, not so fast. If that annual 6% earnings rate is being taxed every year, it will take longer. I was recently on a ZOOM and this concept was re-explained to me. It reminded me of the benefits of tax deferral. So, how about I get to the end of this commentary now. Yes, an annuity that grows at 6% annually will double in 12 years. A taxable investment will not, as taxes have to be paid each year. So, I am not suggesting that your clients should forgo equity and taxable investments. I am just pointing out the beauty of this annuity product. And, I believe it will be more important in the years to come. Why do I say that? Please read on.
There is a change going on in America. We are printing more money than ever. And, it looks like it won’t stop. Maybe it’s a good time to remind ourselves that the US government is not handing out “their money.” They are handing out “our money.” You see, we all know that our federal government is not building products, making new inventions or making payroll. We do that as Americans. But, (as all leaders like to say)… My fellow Americans, you and I must pay for these spending sprees. Now, I am not here to judge the benefits of any of the programs the government has enacted. But, just to state, that they must be paid for. And, tax rates will increase all across the board. So, therein lies the beauty of tax deferral.
Can I also remind all of us of a great benefit to non-qualified annuities? There are no required minimum distributions with the non-qualified annuity. What a great place to accumulate money to be passed down (also life insurance). And, in the FIA, a client can change the allocations inside the product without selling an investment product and paying tax on the gains. Yes, in an annuity, first dollars out are taxable as they would be the gains… after that, it is just a return of principal. Can I just state one more thing I was reminded of? Many people have a portion of their portfolios in fixed income? And, many have that money with a fee based advisor. I do, and he does a great job. But, it was pointed out that if a client was earning 1.5% in the fixed income account and paying a 1.5% fee, it was a wash… no gain. But, what if your clients had a portion of their fixed income account in annuities? No annual fee and a minimum guarantee. If a MYGA, a gain every year.
So, again, no investment advice given here. Just advice from an older veteran in the business that has “been to this party before.” Remind your clients of the beauty of tax deferred growth and the ability to make their own decisions as to when they want to start drawing money from their account. Next, I will write on our ability to provide a product that can provide an income that they can’t outlive… regardless as to how long they live and also regardless of market fluctuations.
There is a change going on in America. We are printing more money than ever. And, it looks like it won’t stop. Maybe it’s a good time to remind ourselves that the US government is not handing out “their money.” They are handing out “our money.” You see, we all know that our federal government is not building products, making new inventions or making payroll. We do that as Americans. But, (as all leaders like to say)… My fellow Americans, you and I must pay for these spending sprees. Now, I am not here to judge the benefits of any of the programs the government has enacted. But, just to state, that they must be paid for. And, tax rates will increase all across the board. So, therein lies the beauty of tax deferral.
Can I also remind all of us of a great benefit to non-qualified annuities? There are no required minimum distributions with the non-qualified annuity. What a great place to accumulate money to be passed down (also life insurance). And, in the FIA, a client can change the allocations inside the product without selling an investment product and paying tax on the gains. Yes, in an annuity, first dollars out are taxable as they would be the gains… after that, it is just a return of principal. Can I just state one more thing I was reminded of? Many people have a portion of their portfolios in fixed income? And, many have that money with a fee based advisor. I do, and he does a great job. But, it was pointed out that if a client was earning 1.5% in the fixed income account and paying a 1.5% fee, it was a wash… no gain. But, what if your clients had a portion of their fixed income account in annuities? No annual fee and a minimum guarantee. If a MYGA, a gain every year.
So, again, no investment advice given here. Just advice from an older veteran in the business that has “been to this party before.” Remind your clients of the beauty of tax deferred growth and the ability to make their own decisions as to when they want to start drawing money from their account. Next, I will write on our ability to provide a product that can provide an income that they can’t outlive… regardless as to how long they live and also regardless of market fluctuations.
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