VAs that wrap around qualified assets, like IRAs, are now gaining traction in a fitful economy.
"The tax deferral [aspect of the VA] is moot, so really you're buying this for the death benefit, and even more so, for the living benefit--the guaranteed lifetime income," says Loffredi.
"It's for folks who are either in retirement--in the distribution phase--or preparing for that phase of their life," adds Mark E. Caner, Cincinnati-based president of W&S Financial Group Distributors, Inc., the wholesale distribution subsidiary of Western & Southern, referring to his company's Variable Annuity for Roll Over Only Money (VAROOM).
The VA inside an IRA segment
VAROOM has company in the VA-inside-an-IRA segment. For example, MetLife offers its RMD-friendly guaranteed minimum income benefit, GMIB Plus III, with some of its variable annuities purchased with qualified money. The optional feature allows the contract holder to take RMDs while maintaining and potentially growing the income and/or death benefit.
For participants in its employer-sponsored retirement plans, Lincoln offers the ChoicePlus Rollover VA, a product built for rollover money from investors who are nearing retirement and/or transitioning from a former employer's plan. It features investment options from Lincoln's Elite series of funds, along with reduced mortality and expense fees, multiple death benefit options, optional living benefit guarantees and no surrender charges for rollover money.
Why annuities belong inside a retirement nest egg:
A recent analysis by Peng Chen, PhD, CFA, president of Morningstar's Global Investment Management Division, provides compelling reasons for investors to allocate a portion of their retirement savings to an annuity with income guarantees.
According to the report, longevity risk and financial market risk are two of the biggest threats to the retirement nest egg. While Chen doesn't specifically suggest using qualified assets to purchase an annuity, his analysis does emphasize the important role an annuity investment can play inside a retirement portfolio.