annuities?

aahhhhhhhhhhhhh but the point your missing is this:...yes the real interest rate is very low in the early year of an annuity but heres the point.....follow this now..... the payments you receive each month consist of mostly your own capital being returned plus a little interest...you coundnt have a burn rate of pulling out your own cd ladder or bond ladder money at that same rate as the annuity or you risk killing the goose laying the golden egg... thats the big difference...because the stream of the annuity is forever you can burn all that prinicipal each month...thats why annuities can be powerful if you live long enough ...you have to pass the point where you would have burned thru your own dough at that rate of 7% being withdrawn a year.....
 
mathjak107 said:
aahhhhhhhhhhhhh but the point your missing is this:...yes the real interest rate is very low in the early year of an annuity but heres the point.....follow this now.....  the payments you receive each month consist of mostly your own capital being returned plus a little interest...you coundnt have a burn rate of pulling out your own cd ladder or bond ladder money at that same rate as the annuity or you risk killing the goose laying the golden egg... thats the big difference...because the stream of the annuity is forever you can burn all that prinicipal each month...thats why annuities can be powerful if you live long enough ...you have to pass the point where you would have burned thru your own dough at that rate of 7% being withdrawn a year.....
Click to expand...

I forgot. You are going to live forever. Buy the f***ing annuity. That's the only way your "logic" works. Did you flunk math in 7th grade or are you an annuity salesman? Do you have any other Alzheimer's symptoms?
 
not me,,i myself have no use for an annuity but there are people who need to buy a pension for the additional monthly draw it allows them ........ chill out ........
 
I just ran a spreadsheet to see how $100,000 would work if you could earn 5% for 30 years.

You can take $6,504 per year (6.50%) and the $100,000 will be gone after 30 years.

You can take $4,560 per year (4.56%) to start with a 3% yearly cola in the orignal $4,560 and the $100,000 will be gone after 30 years but the last year (year 30) your yearly withdraw will be $10,746 because of the 3% cola over 30 years.

Burch64
 
well there is the answere than..the annuity will give you 7,000 a year which is more than you can get on your own ladder and if you live longer than 30 years or 92 if you started this at 62 the annuity will keep going while you would be out of money on your own.the real l deal i think is no one is going to take the full draw on their own money for all those years at that maximum rate for fear they will live beyond the 30 years and so the difference is greater in practice ,and the annuity affords them more money each month.....
  its not so much the investment of your money that the insurance company is making money with..quite the contrary for them if you live they loose...but they are making their money on the dead people...all their profit is based on the fact that a certain number of people will die each year and they will keep that money both to feed the living and their own profits.....
 
burch64 said:
I just ran a spreadsheet to see how $100,000 would work if you could earn 5% for 30 years.

You can take $6,504 per year (6.50%) and the $100,000 will be gone after 30 years.

You can take $4,560 per year (4.56%) to start with a 3% yearly cola in the orignal $4,560 and the $100,000 will be gone after 30 years but the last year (year 30) your yearly withdraw will be $10,746 because of the 3% cola over 30 years.

Burch64
Click to expand...

You make no sense at all. Where is the 5%? You compare apples to oranges and they aren't the same. So what? Never mind.

Put that same $100,000 into FireCalc for 30 years and you have a 78% success probablility of withdrawing $4,560. Your "discovery" of a better, seemingly more secure return than FIRECalc is not new. It's why insurance companies have those big, fancy buildings and your annuity salesman drives a BMW.

Give them your money and you will never get it back. You might get the payments they promised if they don't fail but be ready for every delay and exception possible as they calculate your COLA. When you die, everything stops. In FIRECalc there is a residual that may be far larger than your original investment.

The argument of people adjusting their spending when their portfolio values drop is very true. How will you adjust your spending if the annuity payments stop? If the market really tanks, where do you think they will get the money to pay you? Did they buy an even "better" annuity from someone else? I think not. They are in the market just like the "do-it-yourselfers."

One path to "retirement" is to buy annuities to cover your expenses for life and then buying LTC insurance with no deductible and no limitation on length of stay. The other path is to self-fund and do your own investing. The "number" you need to retire on the first path will be much larger than the second.

However, that won't be true if you assume you will live forever in a nursing home. If you listen to your annuity / LTC saleman, that will be part of the pitch. Fortunately, that is not reality.

The lottery and annuities are for the math impared.
 
2B: "Me thinks the lady doth protest to much." Too much defensive sounding heat and not enough light. The reason I always get into the annuities arguments is that I want to understand what the options are, not because I believe annuities are a good, or even decent, investment option. First, let me lay my bonifides on the table: I have a good Fed pension, COLA'd, guaranteed; DW and I have a substantial portfolio; we do not have, or currently plan to buy, a commercial immediate annuity; we want to leave an estate to our kids. Any way I look at annuities as an investment, I conclude that putting my money in a diversified portfolio is a better deal.

We do, however, plan our retirement lifestyle around a SWR, as do many people on this board. I have the minimum needed insured by my pension. It seems to me that most poster's interest in inflation protected annuities is not about investment value, it is about SWR insurance value. As I understand Firecalc and other algorithms, a well invested portfolio will assure an income stream of around 4% for 30 years or better given historical market performance with inflation averaging 3%. For a mid fifities couple an inflation protected annuity will insure a slightly better than 4% income stream for life with a-historical market performance and inflation up to 10% - there are state guaranteed insurance programs that can make the risk minimal if carefully bought.

Bottom line: the insurance companies make out like bandits on the dead folks - doh, that is the business they are in; the annuitants live (and rest) in relative peace that the income stream they insured will be there, even if Harry Dent is right and the market goes truly to hell at the end of the decade. The ROR for the annuity is lousy, but so what? You buy the dumb things for peace of mind, not ROR. If someone with a $1M portfolio needs $20k beyond SS to cover minimal expenses and $20k beyond that for fun, it does not sound irrational to me if they elect to cover the first critical $20k with an inflation protected immediate annuity and the fun portion with a diversified portfolio. For someone like that, who understands the numbers, it seems to me that the factors they most need to know about are gotchas that may make the insurance value illusory. The only two I have heard so far are: 1) the 10% inflation factor may get overwhellmed, and 2) the risk that the providers go bust and state insurance guarantees go bust with them.
 
an annuity is in the same realm as life insurance.as long as the company is financially sound i dont think you have to worry about the annuity stopping,,, how many of us worry about our life insurance not paying off if the market slumps or our home insurance....these pools of money are funded by the premiums others pay way more than the markets slumping.....an annuity is life insurance in reverse...life insurance you are betting you will die earlier...annuties you are betting you will die later....just like not everyone needs life insurance not everyone needs or has a use for annuties...non the less depending on your situation they are a very real option to add to ones portfolio.....keep in mind we are not talking variable deferred annuties here which are a rip off and should be banned ......
 
2B said:
You make no sense at all.  Where is the 5%?  You compare apples to oranges and they aren't the same.  So what?  Never mind.

Put that same $100,000 into FireCalc for 30 years and you have a 78% success probablility of withdrawing $4,560.  Your "discovery" of a better, seemingly more secure return than FIRECalc is not new.  It's why insurance companies have those big, fancy buildings and your annuity salesman drives a BMW.

Give them your money and you will never get it back.  You might get the payments they promised if they don't fail but be ready for every delay and exception possible as they calculate your COLA.  When you die, everything stops.  In FIRECalc there is a residual that may be far larger than your original investment.

The argument of people adjusting their spending when their portfolio values drop is very true.  How will you adjust your spending if the annuity payments stop?  If the market really tanks, where do you think they will get the money to pay you?  Did they buy an even "better" annuity from someone else?  I think not.  They are in the market just like the "do-it-yourselfers."

One path to "retirement" is to buy annuities to cover your expenses for life and then buying LTC insurance with no deductible and no limitation on length of stay.  The other path is to self-fund and do your own investing.  The "number" you need to retire on the first path will be much larger than the second. 

However, that won't be true if you assume you will live forever in a nursing home.  If you listen to your annuity / LTC saleman, that will be part of the pitch.  Fortunately, that is not reality.

The lottery and annuities are for the math impared.
Click to expand...

I was not making a case for or against annuties, I was just putting some figures on the board, you are taking this discussion much too seriously.

Burch64
 
mathjak107 said:
an annuity is in the same realm as life insurance.as long as the company is financially sound i dont think you have to worry about the annuity stopping,,, how many of us worry about our life insurance not paying off if the market slumps or our home insurance....these pools of money are funded by the premiums others pay way more than the markets slumping.....an annuity is life insurance in reverse...life insurance you are betting you will die earlier...annuties you are betting you will die later....just like not everyone needs life insurance not everyone needs or has a use for annuties...non the less depending on your situation they are a very real option to add to ones portfolio.....keep in mind we are not talking variable deferred annuties here which are a rip off and should be banned ......
Click to expand...

What is this? None of the responses to my post say they are buying an annuity. They are just looking at them as "investments" to supplement their other assets. My whole point is that they are poor investments. If you are "well off" with COLA'd pensions and a substantial portfolio, why in heaven's name would you think you need one? If you really do have a "substantial portfolio," you also have enough money to waste some on a poor investment like an annuity where it won't really hurt you. If so, I encourage you to buy them because I have bank and insurance stocks in my index funds.

Unfortunately, I have come across people that have put the bulk of their liquid assets into annuities and then have cash flow problems. Their whole life gets sucked into a substandard investment and a lifetime income stream that can't meet their new, higher cost of living. Usually, that's coupled with a finite mortality where their income for life will soon end. Dying with dignity ain't cheap. Cash is king -- especially when you don't have any. Annuities are frequently sold to people that they are not appropriate for. I have trouble thinking of anyone that they would be appropriate for.

The only advantage I can see for an annuity is if you are Ken Lay or Jeff Skilling. There the massive (yes, massive) amounts of annuities they have are exempt from law suits and creditors unless it can be specifically shown that they bought the annuities specifically to protect criminally obtained assets. Buying them with criminally obtained assets isn't enough to break the annuity protection.

Also, insurance companies do go broke and default. An insurance company in Texas did just that and homeowners are scrambling. If your house burned down while "covered" by the defaulting company, you have no coverage. Annuity companies have also failed but none that I have heard about recently.

Am I taking this too seriously? Probably but I've also seen some horrible annuity deals that have seriously hurt people. Some have been in my own family and some where friends have discussed with me their own or their parents finances.
 
2b you hit the nail on the head...very few people in this group need the annuties...most of us can  cover our expenses on our own for the most part.we have the assets and where with all ,we have planned and saved and invested and thats why we have an interest in this board.........kind of like martians landing in a hospital and going geesh everyone on earth is sick,,,,its the make up of the group based on what the group is .............bet if suzie orman had a board that board would be full of prime candidates for one.........
 
mathjak107 said:
an annuity is in the same realm as life insurance.as long as the company is financially sound i dont think you have to worry about the annuity stopping,,, how many of us worry about our life insurance not paying off if the market slumps or our home insurance
Click to expand...

I do. If you plan on committing a large sum or exprecting a large sum from any insurer, you should be very, very picky who you will do business with. There are lots of safeguards in place even for shaky companies, but if we are talking about a large sum there is no sense in taking the risk. I think a lot of people are pretty blase about the insurers they will deal with and it is not smart. There is no FDIC equivalent for insurers.

There is a very short list of companies I will do business with. Most of them are mutuals (i.e. owned by the policyholders), highly rated, well capitalized, and large. Sometimes you pay more for the product as a result, but you get what you pay for.

The first tier of who I would deal with:

- TIAA-CREF
- MassMutual
- Northwestern Mutual
- Guardian
- Penn Mutual
- USAA
- Ameritas

Second tier (OK choice if you can't get what you need from the above):

- Protective Life
- MetLife
- Pacific Life
- Minnesota Life

I would not do business with the company that underwrites Vanguard's immediate annuities unless I really needed coverage and there were no other reasonable choices.
 
brewer-
Regarding your opinion of various insurance companies, didn't your previous life relate to evaluating companies or something similar? If so, that would make your opinions more than idle speculation.
 
2B said:
The only advantage I can see for an annuity is if you are Ken Lay or Jeff Skilling. There the massive (yes, massive) amounts of annuities they have are exempt from law suits and creditors unless it can be specifically shown that they bought the annuities specifically to protect criminally obtained assets. Buying them with criminally obtained assets isn't enough to break the annuity protection.
Click to expand...
Interesting. I was not aware of that. Does that apply to all creditors? How about the local hospital? If you are without health insurance and go into the emergency room and require major surgery, can the hospital attach your annuity? Can some one suing you for injuries on your property?

Join in here Martha - could you stash your funds into an annuity AFTER someone filed a suit against you?

And, if the annuity is protected, why not an IRA that you might use to buy it?
 
Gearhead Jim said:
brewer-
Regarding your opinion of various insurance companies, didn't your previous life relate to evaluating companies or something similar?  If so, that would make your opinions more than idle speculation.
Click to expand...

I spent three years working for a rating agency doing credit ratings of life insurance companies. I had insider status and was regularly told lots of non-public information. I also got a pretty good idea when people were stretching the truth.

There were only four companies that the 14 or so people on the life insurance team bought all their policies from.

You'll have to decide for yourself how much salt you wish to consume along with my suggestion.
 
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