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Old 06-27-2013, 02:50 PM   #21
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Thanks guys - I really don't think the Annuity in this case is for me - I will stay away. I see lot's of folks said I could do better myself. Are there any training tools on this site or others that i could read to get more up to speed on investing?
It will take some effort on your part, but it's not as difficult as the financial pros will lead you to believe - they make it sound difficult so you will hire them. And that tactic has worked very well from them for many years generations.

Good place to start online Bogleheads
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Old 06-27-2013, 05:22 PM   #22
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These reasons have already been discussed in the past. Thus the OP can google threads on this website. The main reason is mathematical in my case: my FIRE plan shows higher cash flows with deferred annuities bought in my 40s and SPIAs after age 70.

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I think it would also be helpful if people gave a reason why they should run away and not buy it. .
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Old 06-28-2013, 08:08 AM   #23
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Another issue is that variable annuities may be considered investment contracts and subject to loss if the issuing company becomes insolvent.

Are You Protected If Your Insurance Company Goes Belly-Up?

Investor Tips: Variable Annuities


OTOH most 'traditional' SPAs are considered "insurance" contracts and are covered by state guaranty organizations (similar to FDIC for bank deposits) up to (typically) $100-300k.

nolhga.com :: Policyholder Information

As I understand it, those loss limits are per company (similar to FDIC loss limit including all of an individual's accounts at a specific bank).
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Old 06-28-2013, 08:51 AM   #24
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Surely, some of those fees must be a one time charge at the time of signing the contract. Are you certain they are yearly? 4% a year would tax the powers of Warren Buffet, one would think.
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Old 06-28-2013, 09:38 AM   #25
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Another issue is that variable annuities may be considered investment contracts and subject to loss if the issuing company becomes insolvent.

Are You Protected If Your Insurance Company Goes Belly-Up?

Investor Tips: Variable Annuities


OTOH most 'traditional' SPAs are considered "insurance" contracts and are covered by state guaranty organizations (similar to FDIC for bank deposits) up to (typically) $100-300k.

nolhga.com :: Policyholder Information

As I understand it, those loss limits are per company (similar to FDIC loss limit including all of an individual's accounts at a specific bank).
Generally VAs are separate account products, which means the assets in the policy are segregated from the insurer's assets in the event of an insolvency. Where the rub comes in is that most people buy these things for the guarantee, and that is an obligation subject to the solvency of the insurer. If the insurer goes down, you are at risk to the extent of your guarantee's value.
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Old 06-28-2013, 10:43 AM   #26
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Generally VAs are separate account products, which means the assets in the policy are segregated from the insurer's assets in the event of an insolvency. Where the rub comes in is that most people buy these things for the guarantee, and that is an obligation subject to the solvency of the insurer. If the insurer goes down, you are at risk to the extent of your guarantee's value.
Don't you mean your risk is the amount your annuity's value EXCEEDS the state's guarantee limit? IOW- If I buy SA for $500k, the insurance co defaults, and my state's guarantee limit is $100k, I'm (potentially) out $400k. Or am I mistaken?

Also- Even where the VA includes separate 'investment' account, the annuity buyer could still loose $$ if the market (assuming stock investments) drops significantly & the insurer defaults, right?

Example- I buy VA linked to market equities for $500k. One yr later the market has dropped 25% & the insurer goes bust. My state guarantee fund limit is (say) $100k. Despite the insurer's "guaranteed minimum accumulation benefit" and the separate "investment" account, wouldn't I still have lost $$$?

http://www.ftadviser.com/2012/01/12/...M/article.html

http://www.smartmoney.com/retirement...nnuities-9512/
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Old 06-28-2013, 10:57 AM   #27
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Regulators would be very reluctant to invade separate account assets to satisfy general account obligations even if they had the right to do so (doesn't mean that they wouldn't if they could and were backed into a corner).

The reality is that the degree of losses in your example are unheard of after regulatory reforms enacted in the 1990s. I'm unaware of any insolvency resulting in loss of principal - ever. Typically though, what the policyholder was expecting for return gets trimmed back.

I worked for one of the reinsurers that stepped in to help with the Mutual Benefit Life insolvency in the 1990s and was tangentially involved in the workout. IIRC the policyholders eventually got their principal back but the return was much lower that MBL had promised when they sold them the policies.
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Old 06-28-2013, 11:32 AM   #28
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Don't you mean your risk is the amount your annuity's value EXCEEDS the state's guarantee limit? IOW- If I buy SA for $500k, the insurance co defaults, and my state's guarantee limit is $100k, I'm (potentially) out $400k. Or am I mistaken?

Also- Even where the VA includes separate 'investment' account, the annuity buyer could still loose $$ if the market (assuming stock investments) drops significantly & the insurer defaults, right?

Example- I buy VA linked to market equities for $500k. One yr later the market has dropped 25% & the insurer goes bust. My state guarantee fund limit is (say) $100k. Despite the insurer's "guaranteed minimum accumulation benefit" and the separate "investment" account, wouldn't I still have lost $$$?

Variable Annuity 2.0 - FTAdviser.com

What's Wrong With Variable Annuities - SmartMoney.com
If the crap really hits the fan, the guarantee funds are likely to be worthless. I beleiev you should scope out your risk based on gross exposure ignoring the guarantee funds.

As for the rest, I clearly said that your exposure would be the value of the guarantee. So if your contract value was $400k in separate accounts and a guarantee that was in the money to $100k of value, your $400k would be legally protected from the insurer's insolvency and the $100k value of the guarantee would be at risk.
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Old 06-28-2013, 11:40 AM   #29
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I think he was saying his contract value would be $500k (ie; a $500k premium to the VA in the SA) so his $500k should be money good. What would be at risk is the general account's ability to provide the VA contract guarantees to the SA (GMWB, GMAB or whatever), right?
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Old 06-28-2013, 02:09 PM   #30
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I think he was saying his contract value would be $500k (ie; a $500k premium to the VA in the SA) so his $500k should be money good. What would be at risk is the general account's ability to provide the VA contract guarantees to the SA (GMWB, GMAB or whatever), right?
Correct.
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Old 07-01-2013, 10:11 AM   #31
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If OP feels a great need for a VA, cruise over to the Vanguard site and look at one that has minimal fees/no commissions. I agree with the others who have negatively commented on the merits of VAs in genral.

Invest in new track shoes and run, run, run...
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