Annuities? Have you been talking to someone who want to sell you something?

[nun]

IMHO, annuities are going to be a product that some people are wired for and some aren't. I am referring to variable annuities because there seems to far less discussion on SPIA's.

I figured out what I needed as income and decided I wanted SS and annuities to be able to supply that for me regardless of what happened in all the markets. (House paid for, no debt, etc.) I also wanted to secure a COLA if possible and while it might be slight SS does have one and by using an annuity with a product like Wellington in my annuity I feel confident over time my monthly payments will rise which will also help. If it doesn't, oh well, I still have my two payments.

If you prioritize the stable nature of income then an annuity is a good option. Whether the annuity is good value for money is another question. I will not be buying any variable annuities because I think they are expensive. I have put my money into the social security systems of the US and the UK; the US because I had no choice and voluntarily in the case of the UK because of the good value for money....the COLAs are also excellent to have. My employer's DB plan is also excellent value for money with a 7.7% initial payout rate. Given those stable sources of retirement income I will probably not be buying a TIAA-CREF SPIA when I retire, I'll transfer the money I have in TIAA-Traditional to equity investments over 10 years.

 

[Chuckanut]

When Wade Pfau came up with is suggestion that an AA of SPIAs and stocks rather than bonds and stocks might be better in retirement I was not surprised.
Of course the payout rate and whether there's some COLA is vital.

IIRC, Dr. Pfau's research showed that the combination of SPIA and stocks was the better than stocks and bonds. Furthermore, for this to work it had to be a lower cost fixed annuity, not a variable annuity. Apparently, the higher cost of the variable annuity was a drag that could never be overcome by most people.

 

[Chuckanut]

Again, IMHO, I don't see anything wrong with either opinion, like someone else posted, we fall into two camps on this.

+1

We all need to do what works for us. It is not just a financial decision but a quality of life decision. If having a annuity or two lets one sleep well at night that's a plus.

 

[bmcgonig]

IMHO, annuities are going to be a product that some people are wired for and some aren't. I am referring to variable annuities because there seems to far less discussion on SPIA's.

I figured out what I needed as income and decided I wanted SS and annuities to be able to supply that for me regardless of what happened in all the markets. (House paid for, no debt, etc.) I also wanted to secure a COLA if possible and while it might be slight SS does have one and by using an annuity with a product like Wellington in my annuity I feel confident over time my monthly payments will rise which will also help. If it doesn't, oh well, I still have my two payments.

When I reach an age where I realize I have more money than life left I will cash out the annuities and just put them in the existing allocation I own.

The other side of the wired portion, IMHO, are the individuals who believe the 0.95% fee I pay is not worth it because they are confident they will be able to do exactly what I am doing without the fee. I truly wish I was in that camp but I am not, I need a guarantee that I have enough money and it can't go away and I don't mind paying the .95% for the feeling

Kimo

When I read about these on the vanguard site they also have the annuity cost which is approx 0.6%. Are you paying that too?

 

[Kimo]

I pay .95% for the GWLB of 4.5%. This is only for GWLB. I still pay the "normal" Wellington mutual fund management of .24% (The part you never see in any mutual fund)

 

[Animorph]

IIRC, Dr. Pfau's research showed that the combination of SPIA and stocks was the better than stocks and bonds. Furthermore, for this to work it had to be a lower cost fixed annuity, not a variable annuity. Apparently, the higher cost of the variable annuity was a drag that could never be overcome by most people.

And a follow up found that some part of the stock/SPIA benefit could be explained as a rising stock allocation. So that SPIA's didn't look all that wonderful after all.

 

[bmcgonig]

I pay .95% for the GWLB of 4.5%. This is only for GWLB. I still pay the "normal" Wellington mutual fund management of .24% (The part you never see in any mutual fund)

I'm confused then. The GWLB is an addition to a variable annuity, but you don't have an annuity or don't pay the fee?

 

[Kimo]

I do have the annuity through Vanguard and when I purchased it I immediately starting the GWLB which then kicked into effect the .95% fee. Other than that and the regular mutual fund fee there are no other fees, either to get in or sell it. Think of owning the Wellington mutual fund in your annuity. That is what I have.

 

[aja8888]

I pay .95% for the GWLB of 4.5%. This is only for GWLB. I still pay the "normal" Wellington mutual fund management of .24% (The part you never see in any mutual fund)

The fee of $0.26% (not $0.24%) for Investor Shares is disclosed up front. What do you mean you never see it?

 

[Kimo]

What I am referring to is any mutual fund you own, when you look at it on a statement of a daily quote or a monthly value, you never see the fee. We all know it is there, it is not shown daily or monthly etc. We know it is there because when you researched the fund before buying it, that was one of the things you looked at. If you look at any mutual fund online you can also find the fee. I am referring to day to day observations.

 

[Kimo]

PS. I was going from memory on the .26% fee, sorry.

 

[nun]

And a follow up found that some part of the stock/SPIA benefit could be explained as a rising stock allocation. So that SPIA's didn't look all that wonderful after all.

That's a good point, but total potential return is not the only factor in "wonderful". People who choose annuities have to realize that they are giving up potentially higher (and maybe lower) returns for guaranteed income. Of course if annuities and SS completely cover your income needs and you don't need to spend any of your stock returns or principal then a rising stock allocation is a consequence. Outside of SS and my state DB plan I intend to be almost 100% equities (I will probably have some small bond allocation through Wellesley or Wellington), reinvest dividends and probably go into the accumulation phase again post 66 years of age.

 

[bmcgonig]

I do have the annuity through Vanguard and when I purchased it I immediately starting the GWLB which then kicked into effect the .95% fee. Other than that and the regular mutual fund fee there are no other fees, either to get in or sell it. Think of owning the Wellington mutual fund in your annuity. That is what I have.

Sounds like you got a good deal. If you bought the same thing now it would cost an annuity fee of 0.6% plus 1.2% GLWB fee. I'm amazed that u aren't paying an annuity fee every year.

 

[Kimo]

I am surprised they have a fee now. I am not surprised they raised the GLWB fee, I knew that was coming because when I called them they actually told me it was going to be raised. I knew I was buying them anyway so I just made sure it was before that date. I just had three of my annuities renew and I went back and looked at the paperwork after reading your email and I definitely don't have a fee. I don't know if these are as good a place to hold money as they were when I bought them.....

 

[nun]

I've always thought of variable annuities as being "neither fish nor foul". They are complex and are usually expensive.

If you want guaranteed income then I'd buy an SPIA with some of your retirement money, ideally something with some inflation protection like the annuities offered by TIAA-CREF. Then I'd invest the rest in low cost index funds. Combining SPIAs and straight forward index funds keeps costs to a minimum. Of course you might look at a CD ladder instead of the annuity and ideally you might not want the annuity if you have a DB plan or a nice SS check.

 

[Kimo]

I've always thought of variable annuities as being "neither fish nor foul". They are complex and are usually expensive


Sigh.......only if you buy from a sales person......no more complex than owing a mutual fund...

 

[brewer12345]

I've always thought of variable annuities as being "neither fish nor foul". They are complex and are usually expensive


Sigh.......only if you buy from a sales person......no more complex than owing a mutual fund...

Oh, no, they are foul all right - no matter who you buy from.

Go back and read carefully through your paperwork. I would be extremely surprised (to put it mildly) if you were not paying M&E fees.

 

[REWahoo]

.....no more complex than owing a mutual fund...

We must be reading different prospectuses. The variable annuities I've looked at had at least 75 pages of 'fine print", usually 100 or more - regardless of who sold them.

 

[Kimo]

I have owned 3 of these for 2 years, I know exactly what I pay, scroll up and you will see....the application as I remember it was about 6 pages of which 3 or 4 didn't apply to me...They work for me and they don't for you....kind of like mutual funds, if we all liked the same funds maybe there would be 3 instead of about 7000 of them....

 

[brewer12345]

I have owned 3 of these for 2 years, I know exactly what I pay, scroll up and you will see....the application as I remember it was about 6 pages of which 3 or 4 didn't apply to me...They work for me and they don't for you....kind of like mutual funds, if we all liked the same funds maybe there would be 3 instead of about 7000 of them....

Whatever works for you. Personally, I am looking forward to the start of small game season. Just ordered a new 20 gauge semi-auto...

 

[Kimo]

Cool.......I am looking forward to the Hot August Nights collector car event in Reno!!!!! My latest restoration will be done!!!!

 

[Kimo]

FYI...you want complex!!! Try registering a collector car that is in Nevada when you live in Hawaii. All I want to do is give them money so I can have a license plate on the car that is there. This is far more complicated than the annuities I bought and it is taking 10 times as long, or longer....Jeezzz!!!! And here I thought States were looking for ways to tax individuals so they could get more money...

 

[nun]

Sigh.......only if you buy from a sales person......no more complex than owing a mutual fund...

Variable annuities are certainly more complex and expensive than owning a mutual fund. The Vanguard annuity may well work well for you, but my approach would be to keep expenses to a minimum and if I wanted guaranteed income I would use CDs, SS, DB plans and SPIAs before looking at a variable annuity.

 

[Andre1969]

I'm a bit nervous...got a phone call from my uncle the other day, telling me he wants me to look at some annuity papers for my grandmother that are supposed to arrive today. Grandmom is 90, legally blind, and not in a position to manage this kind of stuff anymore, so normally my Mom handles her finances, but she's in Florida for a couple weeks. My uncle knows nothing about finance...in fact, I manage his retirements for him! He looks at me as some sort of financial guru, which kinda scares me a bit.

I really don't know much about my Grandmother's finances, other than a rough idea of what it's all worth, and that it's mostly in bank CDs and other low-interest, conservative accounts. So I didn't even know Grandmom had an annuity.

So, I have no idea what to expect. Hopefully this isn't some decision that needs to be made right away, so I can pawn it off on Mom when she comes back!

 

[pinejake]

Hey Kimo, I have an identical investment through Great West life. I hate the .9% fee, but love the "floor" it puts under my mutual fund investment. Mine is in a pre tax account

My fund guarantees a 3.75% withdrawal will be available from the fund for the longer of my or my wifes life span. The investment is in a balanced fund, and the 3.75% is based on the balance at the time I start taking withdrawals (base) . Every year on the anniversary date the base that the 3.75% is calculated against is reset to the current balance in the fund, if the balance has grown. If the balance has not grown, the base stays at the original level, so the withdrawal amount will never go down.

Best case the fund performs well enough to overcome the 3.75% withdrawal and .9 % fee. (plus mutual fund fees also). In this case the balance grows and the amount that I can withdraw grows also. Of course in this case, the 1% fee is wasted because I did not need the guarantee.

Worse case, the fund does not perform well and gets eaten up by the withdrawals and fees. Then you still are guaranteed a withdrawal amount at least as large as the original one. (unless the company goes belly up)

The fund balance is mine to do with as I please, I can get out of the program at any time and move the money to a different investment, and take a chunk out for a special need (which decreases my base) Also the balance passes on to heirs if my wife and I get run over by a beer truck tomorrow.

Not for everybody, but I like it