Fair Market Value of Annuity

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Puzzled
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Joined: Sat Dec 31, 2011 3:50 am

Fair Market Value of Annuity

Post by Puzzled »

I have a Single Premium Immediate Annuity. Every January I get a letter stating the Fair Market Value of the Annuity from the past December. IOW in Jan 2018 I got notified of the FMV based on Dec. 31 2017.

The short version - I’m looking for an online calculator to figure out the FMV for Dec. 31 2018. Either month by month or just a single year end value.

All the online calculators I’ve seen have you making monthly payments into an annuity. I’ve paid a single premium & now am taking out monthly payments & want to determine the cash value as time goes on. Just like the letter I get every year.

Any help in locating an appropriate online calculator would be greatly appreciated. I have spent a couple hours in my search but to no avail.
Thank you
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David Jay
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Re: Fair Market Value of Annuity

Post by David Jay »

I found this, I don't know if it helps: http://www.wealthmanagement.com/philant ... nt-value-0

It says that there are IRS tables based on age that are used to determine the figure.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
rgs92
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Re: Fair Market Value of Annuity

Post by rgs92 »

I think it's based on current interest rates. I get these things also from one company at the end of each year.
Topic Author
Puzzled
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Re: Fair Market Value of Annuity

Post by Puzzled »

A few years ago I did try 1 or 2 online calculators but they never matched what the company sent me. So I end up calling for the figure. However over the years it’s become more difficult to get through to someone who can provide this information. So now I’m trying to hopefully find a better or different online calculator but cannot. I figured if the results were close enough to previous years then I would just go with it. However I cannot even find the old calculators that I tried.

Typically when I called & got a verbal figure for the end of the year it was within pennies of the amount stated on the letter that I would receive the following January. IOW I called in Jan 2016 for the future FMV based on Dec 31 2016. When I got the letter in Jan 2017 it exactly matched the verbal figure I got 11 months earlier.

When I did call for a future date FMV I was put on hold for quite some time while they figured out the value. I was told this was because they had to figure it out month by month. I don’t have a problem doing that, but I would need a calculator or formula.
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WoodSpinner
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Re: Fair Market Value of Annuity

Post by WoodSpinner »

Excel’s NPV functionality should help . Assume Google sheets has something similar.
OnTrack
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Re: Fair Market Value of Annuity

Post by OnTrack »

The FMV of an immediate annuity would depend on a current discount rate, so I don't see how one can predict the FMV a year into the future unless you make an assumption regarding discount rate at that future date.

http://www.dtcc.com/~/media/Files/Downl ... -15-12.pdf
Topic Author
Puzzled
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Re: Fair Market Value of Annuity

Post by Puzzled »

Thanks for the link to Income Value. It says “INCOME VALUE: An industry solution to assessing the fair market value of Income Annuities”. I presume that means there could be other methods of assessing the fair market value. It mentions about updating the “Income Annuity Yield Curve on a daily basis“. As OnTrack mentioned, I think it would be difficult or impossible to predict a FMV based on this.

My predicted (in Jan) FMV for 6 years has ended up either matching the official year end letter (Dec) or being off by one penny. The exception was last year being off by $7.

Since the verbal predicted FMV has been accurate, I have to presume my insurance company is using a different model to compute the FMV.

I looked at the NPV Function & will have to look into it thoroughly. Right now it seems confusing to me. For example why is the Initial cost of investment a negative number? Shouldn't that be a positive number for the premium money paid into an annuity?
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Puzzled
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Re: Fair Market Value of Annuity

Post by Puzzled »

I was looking into how NPV works. It says “Net present value (NPV) is the value of your future money in today’s dollars. The concept is that a dollar today is not worth the same amount as a dollar tomorrow.”
https://financialmentor.com/calculator/ ... calculator

All the calculators I've seen appear to relate today’s FMV to future money.

I want today’s FMV based on what’s left in the annuity as of today. If I die today then future money has nothing to do with what my beneficiaries will inherit. So far I cannot find one calculator that lets me determine that.
Gill
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Re: Fair Market Value of Annuit

Post by Gill »

I have received similar letters and I’ve always wondered why it is relevant. The contracts can’t be sold or redeemed so why should we be interested in their fair market value?
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
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Puzzled
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Re: Fair Market Value of Annuit

Post by Puzzled »

Gill wrote: Thu Feb 08, 2018 8:57 pm I have received similar letters and I’ve always wondered why it is relevant. The contracts can’t be sold or redeemed so why should we be interested in their fair market value?
Gill
If I die before the 20 guaranteed year term is up then my beneficiaries will receive the balance. Either a lump sum payment equal to the FMV as of that date or the remaining balance of the payments until the 20 years have been paid out.

If the FMV is $100,000 when I kick the bucket then someone will get it, or the remainder of the 240 payments, whichever they choose.

Perhaps your annuity is different but mine has a 20 year guaranteed pay out & therefore is currently worth something to somebody.
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Dale_G
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Re: Fair Market Value of Annuity

Post by Dale_G »

And my annuities are for a fixed term/period - and can be sold. I wouldn't take any haircut because the actual embedded interest rate is well above the present market.
Volatility is my friend
Gill
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Re: Fair Market Value of Annuity

Post by Gill »

OK, I hadn’t thought of that type of annuity. Mine are all pure single life annuities so FMV is irrelevant.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
alsopuzzled
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Re: Fair Market Value of Annuity

Post by alsopuzzled »

If I die before the 20 guaranteed year term is up then my beneficiaries will receive the balance. Either a lump sum payment equal to the FMV as of that date or the remaining balance of the payments until the 20 years have been paid out.
I recently received a death benefit on my mother's annuity, The amount that was paid out was several thousand doallrs less than the FMV indicated on her 2019 Form 5498, even when taking into account the distribution received in 2020.

1/31/2019 FMV = $23,293.93 reported on 5498 in Jan 2020.
2020 distribion = $2878.23 (and no taxes withheld according to the 1099-R)
Death benefit paid on Jan 25 2021 = $17,302.40 (check for $15,284.34, $2018.06 fed tax withheld)

When I questioned the copany, they said that FMV was just a number that they had to provide based on IRS rules and that it wasn't possible to deterine exactly what it would be so they had to estiamte, and that often times it was higher than the death benefit. Looking for further info, I came across this thread and quote. Are some annuities set up to pay out a smaller death benefit than the FMV? I don't have the origianl paperwork on this.
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gasdoc
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Re: Fair Market Value of Annuity

Post by gasdoc »

Gill wrote: Fri Feb 09, 2018 7:54 am OK, I hadn’t thought of that type of annuity. Mine are all pure single life annuities so FMV is irrelevant.
Gill
I realize this is an older post, but I can think of a couple of reasons FMV of a SPIA might be relevant.
1) If a SPIA were to be purchased inside an IRA, and there is also post tax money in that IRA, and the Pro Rata rule needed to be followed for Roth conversions, FMV of the SPIA would serve as part of the value of the pretax portion of the IRA for that calculation.
2) If a deferred income annuity were to be purchased within an IRA, and the income stream was to begin later than the age at which RMD's were to begin, a calculation of the FMV of the deferred annuity would be necessary to calculate RMD's.

Please think about this critically and comment, because I am just thinking this through and have been reading about these scenarios, but I am not an expert.
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Stinky
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Re: Fair Market Value of Annuity

Post by Stinky »

alsopuzzled wrote: Sun Feb 14, 2021 12:34 pm
If I die before the 20 guaranteed year term is up then my beneficiaries will receive the balance. Either a lump sum payment equal to the FMV as of that date or the remaining balance of the payments until the 20 years have been paid out.
I recently received a death benefit on my mother's annuity, The amount that was paid out was several thousand doallrs less than the FMV indicated on her 2019 Form 5498, even when taking into account the distribution received in 2020.

1/31/2019 FMV = $23,293.93 reported on 5498 in Jan 2020.
2020 distribion = $2878.23 (and no taxes withheld according to the 1099-R)
Death benefit paid on Jan 25 2021 = $17,302.40 (check for $15,284.34, $2018.06 fed tax withheld)

When I questioned the copany, they said that FMV was just a number that they had to provide based on IRS rules and that it wasn't possible to deterine exactly what it would be so they had to estiamte, and that often times it was higher than the death benefit. Looking for further info, I came across this thread and quote. Are some annuities set up to pay out a smaller death benefit than the FMV? I don't have the origianl paperwork on this.
What type of annuity did your mom have? Was it an “accumulation” of some type, like a MYGA or fixed indexed annuity?

I’m not an expert in this area, but I believe that the FMV may be based on the account value. Meanwhile, for some annuities, the death benefit can be equal to the surrender value, which is less than AV if there are surrender charges.
Former life insurance company financial officer who sincerely believes that ”It’s a GREAT day to be alive!”
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