Steve Vernon, author and research
scholar at the Stanford Center on
Longevity, believes that because “Social
Security is the foundation of most peo-
ple’s retirement,” politicians have to make
it sustainable, but “they aren’t doing their
duty, and it’s not going to happen.”
He does add that people should delay
claiming Social Security benefits, using
other savings as a bridge.
Benna isn’t “a big fan” of variable annuities but believes fixed income annuities
work because “you get a guaranteed
lifetime income.” However, he says any
annuities must come from “strong companies like New York Life” (and others)
that know the market.
Huang believes indexed annuities or
variable annuities with a guaranteed
minimum accumulation benefit rider
that can provide market upside and
downside protection “will continue to
gain popularity in the New Year.”
Christine Benz, Morningstar’s direc-
tor of personal finance, agrees, but adds
[with indexed annuities] “you also sur-
render a significant part of your upside
in that typically you only earn the capital
appreciation component of the equity
market’s returns. You don’t earn your
dividends or interest.”
She notes that another product that
will grow in importance as the population
ages are hybrid long-term care products,
adding that “it’s typically a life insurance
policy with a long-term care rider. The
idea is it gives the buyer some optionality.
One of the impediments to people pur-
chasing pure long-term care insurance
is some people feel reticent to pay into a
policy for many years knowing they may
not need it. A hybrid product gives you
some flexibility. If you end up not needing
long-term care, then it defaults to a death
benefit that is there for your heirs.”
Vernon has “mixed feelings about
annuities. They have their place, but
they’re oversold. To me it makes no
sense from a financial perspective to
start Social Security early and buy an
annuity. Any money you use to buy an
annuity should be used to fund your
own Social Security bridge loan payment because the increase in your SS
benefit [if you wait] far exceeds the
amount you could have bought with
the same amount of money. It’s almost
financial malpractice for an advisor to
sell somebody an annuity and encourage
them to start Social Security early.”
Ginger Szala is executive managing editor of
Investment Advisor. She can be reached at
Three Replacements for Stretch IRAs
The elimination of the Stretch IRA is a game changer, especially for parents who were considering bequeathing savings
in IRAs to their kids.
“For a lot of people, the bulk of their wealth has been estab-
lished in their IRAs,” said Michael Repak, vice president and
senior estate planner with Janney Montgomery Scott. “This
law, even though it didn’t get the publicity of the Tax Cuts and
Jobs Act, will have an equal impact on estate planning.”
The bill will add $428 million to the federal budget over 10
years. Of its $16.2 billion in revenue provisions, $15.7 billion is
accounted for by elimination of the stretch IRA.
Existing beneficiaries of stretch IRAs will not be affected by
the change in the law, noted Repak. But going forward, most
heirs of IRAs other than the spouse of the benefactor — with a
few exceptions — will have to spend down the assets in 10 years.
Alternative estate planning approaches will emerge to
fill the stretch void. Here are three that Repak thinks will
1. Roth Conversions
Traditional IRA owners who had intended to leave their
retirement assets to their children may be passing on negative
tax consequences now that the stretch has been eliminated.
If the beneficiaries are high earners, a Roth conversion may
make sense; under the traditional IRA model, the distributions would be taxed as ordinary income at a high tax rate.
There are also political implications in the short and near
term. A change in administrations next fall may result in tax
rates going up. That, too, could influence whether to convert
a traditional IRA to a Roth before it is passed on.
Another consideration is state inheritance taxes. A Roth conversion could reduce the size of the estate and reduce tax exposure.
2. Life Insurance
The death benefit of a life insurance policy is not included
as the beneficiary’s income.
Using distributions from an IRA to pay for the policy — assuming the benefactor is insurable — is not a new strategy, but one
that may take on new vitality with the elimination of the stretch.
3. Charitable Remainder Trusts
IRA assets could be used to fund a charitable remainder
trust, which allows the benefactor to establish an income
stream for their children with part of the IRA assets, with the
remainder going to a named charity.
The trust can grow assets tax free, but the named noncharitable beneficiaries (the kids) do pay income taxes on
money they draw from the CRT.
Repak cited two different types of trusts — a charitable remainder annuity trust, and a charitable remainder unitrust. The former
distributes a fixed annual annuity and does not allow continued
contributions; the latter distributes a fixed percentage of the initial assets and allows continued contributions. —Nick Thornton