Annuity arbitrage case studiesArticle added by Eloise Glaspie on April 6, 2009
eglaspie

Eloise Glaspie

SHAWNEE MISSION, KS

Joined: October 13, 2006

My Company

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Have you heard about A. Michael Blaker's Annuity Arbitrage System?

Blaker's turnkey approach allows agents to guide clients through the retirement planning process and leaves nothing to chance. The Annuity Arbitrage Program demonstrates the power of leverage to help provide survivor income, enhance estate assets and provide estate liquidity as well as potential protection from taxation. Here is an exploration of some cases agents have developed using this system.

Case No. 1
Consider the case of 72-year-old Mr. Client who receives monthly retirement income from his former employer plus Social Security benefits. His wife, Mrs. Client, is 71 and has no pension income but does receive monthly Social Security benefits. Joe agent explained that if Mr. Client passed away first, Mrs. Client would lose half of his retirement check and would only be eligible for one Social Security check -- the larger of the two. It became apparent that she could not maintain her standard of living if Mr. Client predeceases her as, statistically, would likely be the case. This was a great concern, and they were extremely receptive to Joe Agent's offer of assistance. Thorough fact-finding disclosed a $150,000 CD that was not immediately needed as income by the clients and earning a low rate of return.

Transferring the CD asset to a single-premium immediate annuity (SPIA) on the life of Mr. Client resulted in a guaranteed lifetime income of $16,241.36 annually. The income tax exclusion ratio on this income was 65.5 percent, which meant that the first $10,638.09 would not be subject to income tax. At his 25-percent tax rate, his taxable liability on the remaining $5,603.27 was projected to be $1,400.82. The bottom line produced an after-tax income of $14,840.54, which purchased a guaranteed life insurance policy on Mr. Client for $368,915 (based on male standard non-smoker class).

By identifying a potential future problem and leveraging an existing asset, Joe Agent was able to help Mrs. Client develop a plan to replace lost income and maintain her lifestyle.

Case No. 2
Ann Client is 65 years old and has $200,000 invested in an IRA. She knows that she will be required to begin withdrawing money from this account at age 70½ due to federal minimum distribution requirements. Josephine Agent was able to show her how to arbitrage that IRA by purchasing an annuity with an income rider. The rider generated a guaranteed minimum lifetime annual income of $12,705, which the client did not need for living expenses.

As with IRA money, these dollars are subject to income taxation on the full amount at her tax rate of 25 percent. The agent demonstrated how using the income rider on a $200,000 annuity would generate $12,705. She can use $3,176.25 of this to offset her income taxes first and then leverage the remainder ($9,528.75) into a guaranteed life insurance contract with her heirs as beneficiaries. The after-tax income from her IRA has purchased a death benefit of $481,353 (based on female standard non-smoker class) which will pass to her heirs free of income tax and probate expense. Additionally, the life insurance policy features an accelerated benefit rider, providing a partial distribution from the death benefit during her life if she is diagnosed with a terminal illness or has a need for nursing home care.

Through the power of arbitrage, Ann Client was able to create a greater legacy for her heirs.

Case No. 3
Then there is the case of John, aged 66 and Joann, aged 65. Clients of Bob Agent for many years, they had planned for sufficient income to enjoy a comfortable retirement lifestyle. During Bob's last review with them they disclosed that they were debating the purchase of a winter home with a $500,000 investment they had previously designated as a legacy for their two children.

Recent turmoil in the financial markets had affected their other investments and they felt guilty about wanting to use their children's inheritance without knowing that funds would be available to replace it no matter when they died. Bob was able to show them how they could replace the $500,000 for their children by utilizing a survivorship life insurance policy at a cost of $7,350 per year based on both John and Joann qualifying for the standard non-smoker class. Better yet, the death benefit would not be reduced by income tax or exposed to the probate process. Bob demonstrated the value of taking advantage of the 10-percent free withdrawal provision of one of their existing annuities to make the premium payments for the life insurance policy. When he left their home that day, they were on the phone with a real estate agent, beginning the search for their winter retreat.

Again, the magic of arbitrage worked.

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