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For Your Clients: Repurposing Existing Annuities

DPL Financial Partners
August 03, 2020

Repurposing Existing Annuities

Client Insights

Is your current annuity working as hard as it could to help you achieve your financial goals? If you’re not sure, it may be time to learn how to get the most benefit from your investment.

Nearly half of investors own an annuity because they want the benefits annuities can provide1, including guaranteed lifetime income, principal protection from market volatility, tax-deferred growth, and more.


Annuities are changing — here’s how:

Despite their popularity, annuities often come with expensive commissions for the sales agent and high costs to the client, which can reduce benefits and impede account growth.

The good news—annuities are changing. Your advisor now has access to a range of annuities built without commissions— you may hear them referred to as “no-load” or “commission-free.” These products have been repriced at a lower cost
with no hidden fees to deliver greater value, choice and transparency to investors, and, in many cases, improved features for asset accumulation, protection, and income.

Working with your advisor, you can determine if your current annuity aligns with your financial goals and plan, or if it’s appropriate to consider exchanging it for a lower-cost product with potentially added benefits.


How to use annuities in your financial plan:

Using an Annuity for Accumulation: Investment-Only Variable Annuity (IOVA)

Designed expressly for tax-deferral, a no-load Investment- Only Variable Annuity (IOVA) can reduce costs, which optimizes the account for growth potential by eliminating fee-drag from product expenses. IOVAs provide a wide range of investment choices, often without allocation restrictions, so you can implement an investment strategy to meet your specific goals. Additionally, certain IOVAs include a Return of Premium Death Benefit, which allows investors to lock in a new protection level if the account value of their current annuity is higher than their existing benefit.

CONSIDER an IOVA if your current annuity has benefits that no longer meet the needs of your financial plan, but you want to keep the tax-deferred status of your assets.


Using an Annuity to Generate Guaranteed Lifetime Income2

With interest rates at historic lows and secure income
sources like pensions disappearing, it’s difficult for traditional investment strategies to generate enough income to fund most retirements. Annuities are the only financial product designed to generate guaranteed income that you can’t outlive, no matter how long your retirement lasts.

With an annuity providing for your monthly income need, you don’t have to take withdrawals from your portfolio for income, or take on more risk to generate income. And because the income received from an annuity is consistent, impacts of the market and sequence of returns risk in retirement are minimized. There are multiple annuity options to consider for guaranteed income, and working with your financial advisor, you can determine which type of annuity can most effectively work for you.

CONSIDER using an annuity for guaranteed income if you currently own an IOVA, or if you are approaching retirement and have identified a gap in income to meet your essential expenses.


Using an Annuity to Recover from Market Volatility

2000. 2008. Now 2020. A substantial market downturn can have a detrimental effect on even the soundest investment strategy, and these effects are amplified the closer you are to retirement. While history shows that with every recession comes a recovery, it’s impossible to pinpoint when a new bull market will begin. Using an annuity with a principal protection component can help you stay invested in the market and capture upside, while minimizing the effects of market volatility.

CONSIDER using a Structured Variable Annuity (also referred to as a “Buffer” Annuity) or a Fixed Indexed Annuity (FIA) to help protect principal and capture upside growth when the rebound begins.


Using an Annuity as a Fixed Income Allocation

With interest rates at historic and prolonged lows, maintaining reliable and efficient fixed income levels can be difficult. Allocating a portion of your fixed income to a Fixed Indexed Annuity (FIA) offers the ability to track equity market performance and can deliver a higher interest rate than
bonds without the potential impact to principal during yield fluctuations. Another option is a Multi-year Guaranteed Annuity (MYGA) that provides a fixed rate for a defined period, allowing clients to customize a strategy to meet their income needs.

CONSIDER utilizing an annuity as a fixed income allocation if you are nearing or in retirement and desire higher returns than current bond yields with the same level of principal protection.


What’s Next?

Talk to your advisor about your current annuity to evaluate if it’s delivering benefits that help achieve the goals of your financial plan. Exchanging your current annuity may reduce costs while providing benefits that more closely align with your plan.


1 “The Language of Retirement 2017: Advisor and Consumer Attitudes Toward Income in Retirement”, Jackson National and IRI, 2017. 2 All guarantees are based on the financial strength and claims-paying ability of the issuing insurance company.

Before purchasing or redeeming a variable annuity, investors should consider their investment objectives, risks, fees, charges and expenses of both the legacy variable annuity and the proposed commission-free annuity and the investment options available with both. For a prospectus and underlying fund prospectuses containing this and additional information, please contact your financial professional.

The purchase of an annuity within a retirement plan that already provides tax deferral under sections of the Internal Revenue Code results in no additional tax benefits. An annuity should be used to fund a qualified plan based upon the annuity’s features other than tax deferral. All annuity features, risks, limitations, and costs should be considered prior to recommending the purchase of an annuity within a tax-qualified retirement plan.

A decision to purchase a new annuity and discontinue an existing annuity should be carefully considered. Before repurposing an existing annuity, investors should be certain they fully understand the existing annuity product and the proposed annuity product. The cost of producing and issuing the existing annuity has already been paid. If repurposed, investors will be subject to paying these costs again for the proposed annuity product, even though these costs will be lower for a no-commission annuity.

Investors are also entitled to advice from their existing insurance producer or insurance company including information on how the existing annuity is working now and how it may perform in the future based on certain assumptions. Investors may have to pay surrender charges to replace their existing annuity which will decrease the initial cash value of the proposed annuity. Interest rate guarantees should also be carefully compared to ensure that you are making the best choice for your future.

It is important to determine if there are any tax consequences involved with the exchange. You may have a loan against the existing annuity’s cash value that, upon surrender of the contract, may be treated as a taxable withdrawal for income tax purposes. This may also result in a 10% tax penalty if you were younger than age 59 1/2 at the time the loan was taken.

DPL Financial Partners does not give tax advice. Clients should be advised to consult with and rely on their own tax advisors prior to repurposing their existing annuities. DPL Financial Partners does business in the state of California as DPL Insurance Solutions under California License #0M42434.
Securities offered through The Leaders Group, Inc. Member FINRA / SIPC
26 W. Dry Creek Circle, Suite 800, Littleton, CO 80120 • 303-797-9080

DPL Financial Partners is not affiliated with The Leaders Group, Inc. DPL20-009


©2022 DPL Financial Partners, LLC. All rights reserved.

DPL Financial Partners does business in the state of California as DPL Insurance Solutions
under California License #0M42434.

Securities offered through The Leaders Group, Inc. Member FINRA / SIPC
26 W. Dry Creek Circle, Suite 800, Littleton, CO 80120 • 303-797-9080
DPL Financial Partners is not affiliated with The Leaders Group, Inc.

Check the background of this firm on FINRA’s BrokerCheck.