[2012] Annuity-are they GREAT??

[pkyorkbeach]

HI
Have some money invested and the market goes up and down. Before it was in money markets but changed it last year. This money is needed for retirement so it can not be lost. I do have a 403b which is aggressive trying to earn as much as possible while I am not yet retiring.

Advisor suggested taking all of this money-which is in the up and down market and putting into an Annuity. There is a fee each year- a percentage. Will not be using it for a minimum of 4 years or maximum 9 years. Advisor showed a nice income each month if we wait the 9 years, a lesser amount if we use it in four years. Looking at the income for an Annuity looks pretty good probably less worry then the stock market. The Annuity will earn about 6% he said. Advisor says if spouse dies 100% will go to the beneficiary-other spouse in this case.

More info-each will have SS, one will have a small pension in about 4 years, one pension will be higher in a few years or more-not ready to retire yet. In addition a nice amount of savings bonds.

Looking for any sagged advice as we have read lots but are not big investors or money knowledge investors. Have read past posts but wanted to see if anyone has experience in this.

I do agree do not put all your eggs in one basket.

Thanks

 

[geekette]

Right upfront, I'm not a fan of annuities.

If the 403b money continues to receive contributions, yours + employers, no way I'd take that money out. Time value of compounding plus variety of investments is to me better. If it has been rolled to an IRA, even better - more choice of investments, from the very safe to the super risky.

Fixed annuity growth is good but it didn't sound like it was fixed, nor that you have solid interest rate info? "About 6%" tells me you need something in writing. If that interest rate changes, what is it linked to?

Your timeline is rather short, so I do understand being frightened by the market, but is this money that you need to sustain you throughout your retirement? If yes, do you believe that a 6% return will meet or beat inflation/cost of living? If yes, then maybe you should look further into it.

If instead you find that only 3% return is guaranteed, then I wouldn't do it. Biggest risk to long term assets is inflation which I am very certain will be quite above 3% in the coming years. It will erode your buying power.

The other thing is, the 403b is a tax shelter. the money will grow and grow and generate no tax bills until you take it out, which you would do slowly, or not at all until 70.5. I don't think it works that way with annuities, I think you are taxed on that 6% annually, plus you will be paying a percentage of assets annually in fees? That is also a number you need to find because it makes a huge difference.

If you are 20 years down the road those fees will become more burdensome on your dwindled assets, especially if that rate of return is less than six and inflation is higher than expected.

Not sure this helped much, but maybe a few things to think about.

 

[Twinkstarr]

I personally don't own annuities, but my late mother did. I think they were divided between 3 companies. After my experience I sure don't want my heirs to go through all the bs, if you still have money in them at the time of your passing.

I think the rules were/are you had to have them fully distributed by the 5th anniversary of her death. 2 of the companies were pretty easy to deal with setting up the distributions/witholding taxes between my sister and I. But I think it was John Hancock of all the paperwork that was needed to set up distributions.

The funny thing was it was no problem when she passed away getting them into our names, just when it came to getting the money.

 

[Passepartout]

I own a couple. They represent under 1/3 of my portfolio. Along with SS, they provide a floor that covers all my day-to-day expenses + some. The Single Premium Immediate Annuities are from Prudential, and pay 7% of whatever amount the accounts peaked at, and after 10 years from inception- 7 from now, I can withdraw the entire purchase price and do whatever I want with the money- something I'd consider if (when) interest rates increase above the 7% I get now. Until then, the total available for withdrawal is reduced 1% per year. I gained 2% total on the payoff (7% vs 5%) as long as I live.

They may not be for everyone, but for me, the numbers work. I don't have to babysit them. There is a nice deposit into my checking account every month. So far every year the payout has increased. I'm not locked in and there is a 100% survivor benefit after I achieve room temperature.

Don't put all your eggs in ANY one basket- whether it's stocks, annuities, real estate, bonds or pork bellies. If you can't sleep at night, you're too aggressively invested. I like the stability of a certain amount of income that can't drop.

Jim

 

[geekette]

I personally don't own annuities, but my late mother did. I think they were divided between 3 companies. After my experience I sure don't want my heirs to go through all the bs, if you still have money in them at the time of your passing.

You reminded me of something with that comment - obviously it depends on your exact set-up, but I thought in most cases the inheritance stopped with the spouse. So if you didn't receive in lifetime payments the amt you put in, tough crackers.

That would lead me to stay in IRA, for anything left to keep rolling to an heir vs insurance company keeping it.

 

[Timeshare Von]

I have an annuity that I bought back in 1999 which is worth more when I die that what I could cash it out for now because they too can lose money and mine did. Essentially on this one, it will pay out the minimum of what I paid into it . . . or how it's performed over time based on investments.

For sake of discussion, I put in $10,000 and due to the drop in the market in 2000 and again in 2008, it's worth today around $5,500. If I cash it out today, that is all I'd get. If I wait until I die, my DH would get my original investment of $10,000 as the death benefit.

Bottom line is I invested poorly at the advice of a commission seeking insurance salesman. Shame on me!

 

[ricoba]

Yes, they are GREAT for 1 Group - Insurance Sales People - Because of the very hefty commissions.

Not to say they shouldn't be a part of your portfolio. But just be careful of promises made by the sales rep and sincerely question whose interest they are really looking out for when suggesting an annuity.

 

[Twinkstarr]

You reminded me of something with that comment - obviously it depends on your exact set-up, but I thought in most cases the inheritance stopped with the spouse. So if you didn't receive in lifetime payments the amt you put in, tough crackers.

That would lead me to stay in IRA, for anything left to keep rolling to an heir vs insurance company keeping it.

Neither of my parents ever drew anything out of them, I think there was $250k total and we were able to get all the money. It was just the pita dealing with when to start pulling the money , as we had to figure in trust income along with DH and my wages. Sister still mad she ended up paying AMT one yr. Spent way too much time with my accountant.

 

[bogey21]

I have a Defined Benefit Pension which acts much like an annuity. Added bells and whistles are a 3% mandatory cumulative cost of living adjustment and an additional voluntary (approved from time to time by my ex-employer) cost of living adjustment. After 10 years of retirement my mandatory COLA is now equal to 30% of my base Pension and my voluntary COLA is now equal to another 14.7% of my base Pension. When I retired I had the option to take a lump sum or the annuity. Am I glad I chose the annuity.

George

 

[IngridN]

DH and I are also considering an annuity to cover the differential between SS and our estimate of non-discretionary expenses in retirement. That estimate is very conservative and has a lot of cushion. I just retired early and DH will retire in the next couple of years. Both of us will have SS and we will need to tap into our retirement savings when DH retires.

There was a recent thread here about annuities and someone posted a link to http://www.early-retirement.org/ a community of early retirees and early retiree wannabees, similar to TUG. There are several threads that contain a wealth of information on annuities on that site. Many links to additional reading material. I must have an inch of printouts to read and educate myself. There are many, many types of annuities and you have to be very careful. The consensus seems to be that the best type of annuity is a SPIA (single premium immediate annuity). That is not what my financial advisor is recommending, although I do trust her and before I commit, I want to fully understand our options.

Ingrid

 

[Htoo0]

I personally don't know much but that seems to be the thing about annuities. There really are all different types. I agree it would be wise to investigate the product very thoroughly before committing.

 

[Talent312]

Among sales-creeps, there is not much difference between TS salesmen, used-car salesmen, and commission-based investiment advisors. You'd be better advised to do you own research on the net and read articles in magazines, like Money, Smart Money and Kiplingers.

Get a handle on how much those annual fees would reduce your net return from products in which you could invest directly yourself, like short to medium-term Treasuries, high-grade corporate bonds, or bond mutual funds.

 

[tompalm]

An Annuity pays the highest commission to agents and cost you the most, but there might be a place in your portfolio for it. Only buy it if you don't want to take risk, want to diversify and have the extra income.

I read an article in a magazine that says smart investors will have a little of everything including a house for rental income, gold, stocks, bonds, etc...

I would rather take the cash, buy a house and collect rental income. If you bought a house in Vegas that cost $150,000, you could easily collect $900 a month after expenses. You could probably get more than that, but it would deliver 6%, and someday, like five or 10 years from now, you might be able to sell the house for $300,000 and now your return is a lot more or maybe 10 -12 % per year. Also, that investment can be left to your family. Vegas might not be the best place to buy a house. If you get serious about that, Money Magazine says Tallahassee FL is the best and named about five other cities. Of course, buying in your local area is a big benefit. To do this with your 403b, you would have to put it in a self directed IRA which is an extra expense each year, so maybe not the best plan for a retirement account, but worth doing if you can get a loan, or pay cash with part of your savings.

 

[4Reliefnow]

Good idea for your advisor

I have been an advisor for 28 years and manage more than $100 million for clients.

First rule - never put more than 20% of total in any one asset. AARP had a "this investment sucks" article and kept pointing to 70 year old investors with 70% and up of total invested in what ended up being a bad idea Diversify

Second rule - When interest rates are high invest long term (people who invested for 1-2 years in 2009 are in real bad shape now) I refer to them as "unguided investors" My client knows that is in the same neighborhood as friggin idiots.

Third Rule- When interest rates are so low you cannot survive unless you buy something with high yield or a bigger rate of return, stick with safe and short term. Interest rates will go back up, maybe higher than before

Read the fine print or ask the tough questions. If the adviser cannot show it to you in writing, it may not exist. If he puts something too good to be true in writing, you probably did not understand the fine print.

The annuity probably pays 6% compounded if the annuitant dies before the money runs out. You might have to stop taking withdrawals if investment results are poor and wait for someone to die. These annuity fees can be around 3% per year. How are you going to cover fees when 10 year treasury bonds pay 2%?

 

[Kal]

Rule #1 - Never buy a variable annuity! Look at the hidden fees and you'll quickly find out why.

Look very carefully at Fixed Indexed Annuities with a Guaranteed Income Benefit rider. This is the only type of annuity that even begins to make sense.

 

[pgnewarkboy]

A promise of 6% interest at this time sounds extremely risky. The company may be lying or making "structured" investments - which are basically derivatives and other very risky investments.

 

[MULTIZ321]

Rule #1 - Never buy a variable annuity! Look at the hidden fees and you'll quickly find out why.

Look very carefully at Fixed Indexed Annuities with a Guaranteed Income Benefit rider. This is the only type of annuity that even begins to make sense.

For those interested, see this interesting link - "Equity Indexed Annuities and Guaranteed Income Benefits, Good or Bad? By Roccy DeFrancesco, JD, CWPP™, CAPP™ - http://www.thewpi.org/?a=PG:823

Be sure to click on the link near the top of the article for his educational Powerpoint Presentation on how Equity Indexed Annuities (EIA's) work.

Richard

 

[DonM]

There are two basic types of annuities. An immediate annuity, and a deferred annuity. The deferred annuities are pushed by the insurance agents because they get a very large commission.

The immediate annuities have a very low commission, and therefore only fee only financial advisors encourage it.

http://www.clarkhoward.com/news/cla...nuities-vs-life-annuities-by-the-number/nDx4/


http://www.clarkhoward.com/news/cla...providers-of-immediate-payout-annuities/nFL5/

 

[pwrshift]

I had a quote on one recently....here in Canada. $500,000 joint annuity payable guarantee for 26 years and for life after that worked out to $30,000 a year...no inflation indexing...don't know what $30k a year would cover in 26 years.

Interesting article here...'Trouble with annuities'

http://archive.aweber.com/youngresearch/FkTnI/h/The_Trouble_with_Annuities.htm

 

[noah_herman11]

Annuities come in various shapes and sizes, geared towards addressing the diverse range of investor needs. The first basic classification is between deferred and immediate annuities. The former accumulates money like a savings account for later withdrawal, whereas the later pays back an initial lump-sum investment plus interest over a period of many years. The second basic difference between annuities is how they accumulate and credit interest, either as fixed, variable, or indexed products.

 

[artringwald]

There are many honest hearted financial advisers out there, but most operate under an important conflict of interest: the advice they're giving you makes money for them. If you're using a financial adviser, it's better to use a fee only based one that is CFP certified and doesn't sell you any investment products.

Annuities are usually a bad idea when interest rates are low and they're ridiculously low right now. If you think you'll live long past the average life expectancy, they might be a good idea, but only when the interest rates are high.

If you want to make sure your retirement money isn't lost, many advisers recommend bucket investing. You have three "buckets", each with enough money for a different time frame. What killed many retirees during the recession, was having to sell stock for monthly income while the market was so far down. With buckets, the short term bucket is in a very conservative (i.e. low gain) investment. The long term bucket is risky, but has time to recover before you take money out.

 

[akp]

Annuities

I have never invested in annuities for two reasons.

1) I don't like to pay fees that high (there are always better low fee options)

and

2) I could never completely understand them. I have a rule that I don't buy any financial product I can't explain to someone else myself. I could *never* completely get the concept.

Anita

 

[Quiet Pine]

If you're using a financial adviser, it's better to use a fee only based one that is CFP certified and doesn't sell you any investment products.

I'm a retired CFP who was paid a salary by Charles Schwab and frowned on many tactics I saw commissioned salespeople use. After retirement, I went to a CPA for tax preparation. He saw how much money we had and recommended an annuity. I took the paperwork home to examine it. The Mortality & Expense fee was 1.25%; the expense for underlying mutual funds he suggested was 1.75%; on top of that he charged 1% to guide investment choices. 4% came out of the investment return before I earned anything! I was very irked that a CPA would push a product like this--and told him so. In the not-so-distant past, CPAs were forbidden to earn commissions.

 

[Clemson Fan]

For those interested, see this interesting link - "Equity Indexed Annuities and Guaranteed Income Benefits, Good or Bad? By Roccy DeFrancesco, JD, CWPP™, CAPP™ - http://www.thewpi.org/?a=PG:823

Be sure to click on the link near the top of the article for his educational Powerpoint Presentation on how Equity Indexed Annuities (EIA's) work.

Richard

Interesting you mentioned Roccy because I've been talking with him a lot lately and I just began working with one of his recommended advisors. I just finished reading his books which can be downloaded for free at www.roccy.org

In my admittedly limited experience with him so far I've been really impressed. One of the income vehicles he recommends is a Fixed Indexed Annuity which he explains in great detail in his book Retiring Without Risk.

 

[Clemson Fan]

The other thing is, the 403b is a tax shelter. the money will grow and grow and generate no tax bills until you take it out, which you would do slowly, or not at all until 70.5. I don't think it works that way with annuities, I think you are taxed on that 6% annually, plus you will be paying a percentage of assets annually in fees? That is also a number you need to find because it makes a huge difference.

I don't think this is correct. I'm no expert and I don't have an annuity (I'm only in my young 40's), but I do think annuities are tax deferred investments.