Annuities and their role in our investing plan

[Nords]

My wifes annuity/pension through her hospital employment runs to about 540 pages.

We should add this statement to the "How do you know when you're really ER'd?" thread...

 

[Goonie]

I voted '6'. I got it at a time that I knew NOTHING about investing...now I know just above nothing. I had a CD mature, and the banker suggested the annuity. Me, knowing nothing, salivated at the chance to lock in at 4%. If the bottom drops out of everything else in the future, then I guess I'll be thankful for my guaranteed percentage. But after averaging a fairly high % with all my other investments for the past couple of years, when I think of a"measly" 4%, I get p*ssed.

I don't like the idea of having my money locked in for so long (10 years), at THAT %.

But, as my Pop always said..."Live & Learn"

 

[brewer12345]

An interesting site:

http://www.annuityfyi.com/

Heh, they appear to be pitching horrific account churning as a service.

 

[wabmester]

Umm, who wouldn't select option 2?

I would invest in f*zzy b*nny if the numbers made sense.

Edit: and who put in the rule that rewrites b-e-a-v-e-r c-h-e-e-s-e?

 

[cute fuzzy bunny]

Heh, they appear to be pitching horrific account churning as a service.

Umm, who wouldn't select option 2?

Do you need me to quote the 3-4 times in the last few days someone suggested that specific individuals or the majority of the board members "would not buy an annuity no matter what"?

It appears at this point that the total number of those is four people while only one would rely on an annuity as their primary investment.

Now heres a good follow on question...for those who voted "no how, no way", how many are doing so because they just hate the product (rationally or irrationally) and how many feel that way because they've taken a good look and come to the conclusion that there is no way that the product would ever meet their needs financially, at any stage of their life?

 

[wabmester]

Do you need me to quote the 3-4 times in the last few days someone suggested that specific individuals or the majority of the board members "would not buy an annuity no matter what"?

Are these different than the people who say they wouldn't buy a high-load mutual fund no matter what?

 

[brewer12345]

I checked #2, since I would buy leveraged beever chee3e futures if I thought they made sense for me. But I could just have checked the no way, no how button. It boils down to the thought that I can almost certainly assemble a package of assets that gets me the same payout that the insurer is offering and still keep the residual. If they are offering something so absurdly attractve, I would be hesitant to buy it because my perception of the insurers' credit risk would be greatly increased.

 

[wabmester]

I checked #2, since I would buy leveraged beever chee3e futures if I thought they made sense for me. But I could just have checked the no way, no how button. It boils down to the thought that I can almost certainly assemble a package of assets that gets me the same payout that the insurer is offering and still keep the residual. If they are offering something so absurdly attractve, I would be hesitant to buy it because my perception of the insurers' credit risk would be greatly increased.

Ditto. I buy high-load mutual funds, too. Well, when they are CEF's trading at a huge discount to NAV, anyway.

Poorly worded poll. Do over!

 

[cute fuzzy bunny]

Perhaps from your perspective. I got exactly what I wanted out of it. Do your own.

Brewer...do you have any information on what % of insurers have defaulted on paying out annuities from a historic perspective, any data on lost cost of living/buying power due to the 10% caps, or any projections on safety of payout vs credit risk going forward for the industry?

 

[wabmester]

I got exactly what I wanted out of it.

Wasn't that always the point of all your "studies?"

 

[ERD50]

Quote from: Cute Fuzzy Bunny on Today at 02:54:11 PM
I got exactly what I wanted out of it.

Wasn't that always the point of all your "studies?"

Isn't that the point of almost everything?

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.
Adam Smith

-ERD50

 

[brewer12345]

Brewer...do you have any information on what % of insurers have defaulted on paying out annuities from a historic perspective, any data on lost cost of living/buying power due to the 10% caps, or any projections on safety of payout vs credit risk going forward for the industry?

Tiny, at least in recent history. Most life insurers that get into trouble either get bought out or get shut down long before they actually impair policyholders (equity, bond and other holders may get the shaft). I believe that some policyholders got nailed on the Executive Life failure, but I am sure a google search r two would bring up a wealth of sordid details.

Projections? Dunno. Creditworthiness has had ups and downs. The equity market crash put a number of companies in real jeopardy. Go take a look at what happened to Allmerica: sold VAs with overly generous guarantees against equity market declines and they very nearly went into receivership. The same or worse could easily happen to other companies when we hit the next problem (equity market crash, credit crunch, credit derivatives implosion, extended period of very low rates, mortality spike, etc.). Many of the Japanese life insurers were about insolvent a few years ago.

Since we are talking about an expensive product with minimal transparency and which is supposed to be an absolute fail-safe, I think a high degree of skepticism is in order.

 

[cute fuzzy bunny]

Wasn't that always the point of all your "studies?"

Pretty much the point of almost every "study". Someone wants to know something, and chances are they're going to find out exactly what they thought, or were paid, to find out.

The very minute you find someone willing to fund me to actually find something out, at great expense, who has absolutely zero interest in the actual outcome going one way or the other? Point them to me.

Brewer - good info, thanks.

 

[FinanceDude]

Or maybe not. Life insurers are extremely difficult for professional credit people to make sense of. How well is a layman going to do?

Good point.......... The easiest way would be to explain the difference between and annuity and a pension in layman's terms...........

 

[donheff]

I read somewhere that the British are REQUIRED to put a substantial portion of their retirement accounts into a life annuity at age 70. Does anyone know if that is correct? If so, who insures them and what kind of rates do they get?

 

[yakers]

There was a big scandal a few years back when several big British insurance companies folded because of their annuities. They had been paying rates they could not support. It ended up a political/legal issue about giving annuity holders a choice of reduced payments over time or higher payments until the company folded.

 

[rs0460a]

I read somewhere that the British are REQUIRED to put a substantial portion of their retirement accounts into a life annuity at age 70. Does anyone know if that is correct? If so, who insures them and what kind of rates do they get?

Here's a link on the subject (if you have nothing else to do for the next month... )

http://www.dwp.gov.uk/pensionsreform/

I also thought this quiz on the UK Pension System was interesting (compared to the US):

http://www.dwp.gov.uk/pensionsreform/debate/quiz/

 

[MooreBonds]

I voted for #2 and #5. I purchased a fixed annuity, simply to diversify. It was a few years ago when rates were in the gutter. One is currently yielding 4% (initial rate was 5.5%). Other one is currently still at 6%. Both are religious fraternal societies.

Since a whopping 0.67% of my net worth is in them, I don't consider it a huge loss...just one of the many hedges I have.

 

[sgeeeee]

nm

 

[rs0460a]

So an annuity (even a small one) doesn't make sense for me right now at age 52. But I have no idea what will make sense for me in the future. Is something does make sense, I hope I have the sense to do it.

To test with my "real numbers" and using Fidelity's Retirement Income tool, I find that 20% of our portfolio, converted to a fixed annuity (10 year guaranteed, 100% to my DW/me upon the other's death, no inflation coverage) results in an additional $400K at the end of our forecast (age: 100). BTW, I/DW are 59 so I'm planning for a 41 year period of "retirement" (actually, the remainder estate is going to charity, so I don't have the "impact" of saving our estate for some future generation - that's also a consideration in an annuity).

Yes, I will persue the "20% solution" in July (after I get my cash balance settlement - I'm retiring May 1) to extend my plan. I need not "give it all up" as you suggest, with #3 (If I don't understand your comment, please correct me ).

- Ron

 

[Cut-Throat]

Okay. Most of you are full of sh#t. CFB ended two of the options with the qualifier, "if it made sense." (choices #2 and #3) Yet very few of you selected #3. So . . . what you are saying is that you would not do something that made sense.

That makes no sense. Now, you may believe that #3 will never make sense, but that wasn't the option.

I have some pension benefits and SS coming. I feel comfortable with moderate risk. So an annuity (even a small one) doesn't make sense for me right now at age 52. But I have no idea what will make sense for me in the future. Is something does make sense, I hope I have the sense to do it.

Yup, you're exactly correct! But the poll was not searching for the truth. It was just trying to 'stroke a hairball'.

 

[donheff]

Yes, I will persue the "20% solution" in July (after I get my cash balance settlement - I'm retiring May 1) to extend my plan. I need not "give it all up" as you suggest, with #3 (If I don't understand your comment, please correct me ).

- Ron

Are you using tax deferred or taxed funds?

 

[Moemg]

I have a survivor annuity.If I did not have that I would definitely consider one . I read an article that stated you should consider one for your wife instead of going with the survivor option.I'm sure you guys will have fun running the numbers on that scenario.

 

[W2R]

One of my options with the federal government's 401K (our "TSP") is to put all or part into a fixed lifetime annuity with MetLife. You don't get the money back, but you get fixed monthly payments for life. At 62, I would get $681/month on every $100,000. Another option is actually the same thing, but inflation adjusted to a limited extent. That one would pay me $494/month on every $100,000. (This is just for me as a single person with no ten year guaranty or other frills.)

Since my combined social security and pension is abysmally low - - and even slightly lower than the minimum I feel I could survive on - - I have been considering this option for enough of my TSP that I could manage on it if I had to, during bear markets. That would probably be less than 1/3 of my account, and the other 2/3 or more I would continue to invest.

I have read that retirees with a good fixed pension are happier than those whose income varies with the market. That sounds like me since I find security to be appealing, but I have lived happily on a shoestring for most of my life. Of course, I would be saying "bye-bye" to any money that goes into this type of annuity, but my daughter will inherit from both her father and from me.

So far, 100% of the advice I have received elsewhere has been vehemently opposed, so I am still up in the air on this one. The main reasons I have been given are that you lose control of the money, and that interest rates are low compared with historical values so I would be getting less than I might have in other times.

My mother is 97 and still going strong, and I am in good health with a number of ancestors who lived to be over 100. So, I am basing my retirement computations on a projected age of 102, just to be safe.

 

[rs0460a]

Are you using tax deferred or taxed funds?

Annuity funded with tax deferred. I'll be splitting out my non-taxed funds (contributed in excess of the deferred) from my 401k before I do my roll over....

- Ron