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Using the Saw-Tooth Strategy to Cut RMDs for Clients

In the financial world, few things are as set as Required Minimum Distributions (RMDs), the scheduled amounts clients must take from their qualified accounts. Perhaps you have had to educate some clients and explain why you must take an RMD from a qualified plan. Some people are unaware of this requirement until it is too late to properly position their asset into a strategy that is directly in line with their needs.

Some of our clients are concerned with capital preservation, and the news of having to take an RMD can be unsettling to them. The thought of a solution that protects their assets from market risk, while providing the upside potential needed to offset their RMD can be an attractive to many retirees. The solution I am describing is a Fixed Indexed Annuity.

Not all FIAs are created equal, though. There are several crediting strategies, most of which are either annual or multi-year reset strategies. There are a few annuity carriers that track the market value daily, but only credit or lock in that value every two or three years. So, the account can simultaneously reflect two values.  While the real-time values can vary, they cannot drop below the locked in value. The real-time value can be higher, but never lower.

The IRS uses the locked in value to factor RMDs. When you use a 2-year reset for RMDs, those distributions come out against the lesser value rather than the actual real-time value, assuming you have elected a multi-year reset strategy.

Here’s an easy way to introduce this idea to clients — when you plot those 2-year RMD reset figures on a graph, the resulting jagged pattern looks like the teeth on a saw. It’s a saw that cuts RMDs.

Bottom line: using this “saw-tooth” strategy can keep more money in the FIA and result in larger compounded gains for your clients over time. It fulfills the goal at the heart of your fiduciary responsibility to clients — to increase total return while minimizing the risk to their assets.

Put the strategy to work for your clients now. SMS is uniquely positioned with the leading carrier using real-time values for FIAs, and we can equip you to present this idea to your clients. From this page, you can download an invitation to send to prospects, a presentation, a walk-through video of that presentation, and a script to use on the phone. With these materials, you can start showing clients how using 2-year resets can lead to greater return over the long term.

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