Annuities - Opinions Yay or Nay?

[pb4uski]

You are more optimistic than I am on what our politicians will do.

Nah, I'm optimistic that they will do nothing since that is their nature.

 

[mickeyd]

If you have an income stream in retirement that consists of pensions, VA disability, as well as ample SSA, you may not need an annuity in addition to those income producers. However, if you feel that you need a guaranteed income to support your lifestyle, an immediate annuity would fit the bill in many cases.


Good luck.

 

[CRLLS]

The biggest issue that I have against annuities is that I've experienced so many unforeseen events in my lifetime. CD's were at one time 15+% interest, Markets lost -40% in bear markets. When I was becoming an adult, I had a neighbor that had a 5% mortgage. He thought there would never be such low interest rates again. 30+ years in retirement is a long time to be committed to one decision made under one set of financial conditions. I want to be able to act on changing conditions, even though I usually don't. It is hard to put real numbers to things that may or may not happen.

 

[aja8888]

don't know how the bond holders of GM did...

Find one and ask him......actually, they all got the shaft.

 

[pb4uski]

Find one and ask him......actually, they all got the shaft.

I was thinking of that for the poster in another thread that had 35% of their nestegg in their employer, LMT.

 

[ychuck46]

Run like the wind

Anything that an annuity seller does to structure an annuity, especially a fixed annuity, can be easily done on your own. Retain control of your money without paying ridiculous fees, and run very quickly from annuities.

 

[Kimo]

There have been quite a few comments regarding losing control of the money you put in the annuity. I bought variable annuities through Vanguard's website 5 years ago and from day one I have been able "to change my mind" at any time with no fees. I understand there are a lot of individuals who dislike annuities but the part about losing control your your principle isn't true in all cases but it s true in many cases. For the record, I still own the annuities and can't see why I would ever get rid of them. I could change my mind tomorrow and get every dime I put into it years ago and also all my profits. FWIW, I am not trying to start a flaming war about annuities being good or bad, just correcting a item that has been repeated. Thanks

 

[Running_Man]

I have the option to buy additional pension payout for a lump sum with zero carrier risk. Things could change, but if I were 55 today I could get a second to die fully CPI indexed payout of about 3.6% of the principal. Would you do this?

Yes because the value of the inflation protection from another source other than the stock market is a good diversifying aspect. The payout is very fair, as comparison a 2% annual indexed annuity with carrier risk is 3.4% for a 55 year old couple, this is far superior to that.

It is not a fantastic investment but a very solid diversifying one that I would utilize if it were offered to me.

 

[corn18]

Misinformed.
Index annuities do not charge fees.

You're right. I can't call participation rates, caps, surrender fees, spread/margin/asset fees fees, right? That would be misinformed.

 

[big-papa]

Anything that an annuity seller does to structure an annuity, especially a fixed annuity, can be easily done on your own. Retain control of your money without paying ridiculous fees, and run very quickly from annuities.

Except for mortality credits.

 

[ychuck46]

Not worth the cost

Except for mortality credits.

If anyone wants to play the game of paying more upfront because they think they might outlive the remaining players and collect more, have at it. I prefer the bird in hand, namely controlling my own money and not paying ridiculous fees, than depending upon the kindness of annuity providers that they will actually pay out the monies they promise, come hell or high water.

 

[brewer12345]

If anyone wants to play the game of paying more upfront because they think they might outlive the remaining players and collect more, have at it. I prefer the bird in hand, namely controlling my own money and not paying ridiculous fees, than depending upon the kindness of annuity providers that they will actually pay out the monies they promise, come hell or high water.

All fine and well, and if you want to maximize your pile to your last day and take the risk that is up to you.

For me, the question is a different one: how do I best manage the risk that dw or I will outlive our money? The solution set includes a huge pile of assets, but that doesn't need to be the only tool used. The reality is that longevity runs in dws family, and my family seems to stick around a long time even when they are in poor health. I also see how dad has lost a lot of his business acumen at 80 and mom is getting a lot less on the ball at 77. It would be nice to think I will still be at the top of my game then, but I can't count on it.

I am some years away from making a decision, but for me simply maximizing the pile is not going to be the most important outcome.

 

[big-papa]

Annuities can have their place, but they're not for everyone and I don't think necessarily appropriate for any random point during retirement. At the end of the day, they're an insurance product - you're insuring against longevity. All insurance products have a price based on actuarial data plus a profit to the insurance company.


Today, I have need for life insurance since I'm the only breadwinner. And I know the price that I'm paying is based on actuarial data plus profit to the insurance company. I'm quite hopeful that, as an individual, my family will never get a payout. But I'm willing to pay, just in case and because I'm young enough that the actuarial data works in my favor (meaning that it's cheap). However, as time goes by, the amount that I need is diminishing and every 5 years my premium increases based on my age. My portfolio is getting larger and my daughter inches closer to being fully launched. So I've been periodically reducing coverage accordingly and will zero it out once she's out of college.


I will look at annuities in a similar manner, but sort of in reverse vs. time. Unlike life insurance, annuities get cheaper the older you are. When I look at my situation, I will have an inflation adjusted income stream of SS and I've built a TIPs ladder on top of that to last about 15 years. Together they will give me an inflation adjusted income stream base which should cover the essentials until I'm 85. So, at age 85, if DW and I are still kicking around, I will reassess depending on personal health, portfolio health, and who/whatever I want to leave a bequest and will consider an annuity at that time to replace the TIPs ladder. If I decide to go that route, I will most likely spread it over several insurance companies and, perhaps, even ladder it over time. Cross the bridge when I get there but it will remain an option.

 

[samclem]

All fine and well, and if you want to maximize your pile to your last day and take the risk that is up to you.
. . . .
I am some years away from making a decision, but for me simply maximizing the pile is not going to be the most important outcome.

The pile presumably exists to serve a purpose/several purposes. In some cases, buying an annuitized income stream can help accomplish that.

 

[RunningBum]

What makes an SPIA acceptable to many, while other annuities are not? Is it the simplicity and competition that makes it hard to hide expenses and keeps the prices low? Or something else? I see this tossed around all the time with no explanation why.

 

[ychuck46]

All fine and well, and if you want to maximize your pile to your last day and take the risk that is up to you.

For me, the question is a different one: how do I best manage the risk that dw or I will outlive our money? The solution set includes a huge pile of assets, but that doesn't need to be the only tool used. The reality is that longevity runs in dws family, and my family seems to stick around a long time even when they are in poor health. I also see how dad has lost a lot of his business acumen at 80 and mom is getting a lot less on the ball at 77. It would be nice to think I will still be at the top of my game then, but I can't count on it.

I am some years away from making a decision, but for me simply maximizing the pile is not going to be the most important outcome.

I understand your rationale. At 65 I may have a different perspective, and I will admit I have a healthy distrust of most insurance companies that issue annuities. That being said I may look at Vanguard's offerings in that regard, since I have dealt with them for some years now and feel they are the best of breed. Good luck whichever way you decide to go. Nice that we have first world problems like we do, such as having to make investment decisions for relatively decent amounts of assets.

 

[big-papa]

What makes an SPIA acceptable to many, while other annuities are not? Is it the simplicity and competition that makes it hard to hide expenses and keeps the prices low? Or something else? I see this tossed around all the time with no explanation why.

I think it's primarily what you wrote - SPIAs tend to be straightforward products with fees that are harder to hide vs. other annuity types (primarily variable types) that tend to obfuscate fees and have heavy pushes from salespeople who may earn a pretty high commission which is also part of the fees.


Here are a couple of good articles from one of the Bogleheads founders on the subject:
SPIAS: https://www.forbes.com/2010/07/29/s...ce-bogleheads-view-lindauer.html#5b623f4c2d89
All types but discusses variable annuities at length: https://www.forbes.com/2010/06/04/v...ce-bogleheads-view-lindauer.html#34f1683d653e

 

[Kimo]

I understand your rationale. At 65 I may have a different perspective, and I will admit I have a healthy distrust of most insurance companies that issue annuities. That being said I may look at Vanguard's offerings in that regard, since I have dealt with them for some years now and feel they are the best of breed. Good luck whichever way you decide to go. Nice that we have first world problems like we do, such as having to make investment decisions for relatively decent amounts of assets.

I own Vanguard annuities and will buy more as I age. It was the right decision for me, good luck to you.

 

[pb4uski]

I think it's primarily what you wrote - SPIAs tend to be straightforward products with fees that are harder to hide vs. other annuity types (primarily variable types) that tend to obfuscate fees and have heavy pushes from salespeople who may earn a pretty high commission which is also part of the fees. ...

+1 I think it is the simplicity and straighforwardness... I pay a single premium of $x and receive $y for life, joint life or for a period certain. For the period certain I can calculate what my reate of return is. For the life contingent versions I am protecting against longevity risk.

Most other annuities have various explicit fees and charges or complicated interest crediting mechanisms that make them harder to understand.

Also, with a SPIA (and to a lesser extent a SPDA) since the terms are similait is easier to compare competing products.

 

[brewer12345]

What makes an SPIA acceptable to many, while other annuities are not? Is it the simplicity and competition that makes it hard to hide expenses and keeps the prices low? Or something else? I see this tossed around all the time with no explanation why.

In my mind, a spia is a transparent longevity hedge. All the other products are basically a shell game.

 

[Chuckanut]

In my mind, a spia is a transparent longevity hedge. All the other products are basically a shell game.

(Emphasis added by me)

+1

As a non financial person I can understand a SPIA. I can evaluate it using tools I understand.

Toss a [-]virtual[/-] variable annuity or an equity indexed annuity at me, and I am at a loss to compare its value to a SPIA or laddered CD's.

 

[nun]

The value of an annuity depends on the numbers and your circumstances. They have been very poor value for a long time because pf low interest rates.

Just before I retired I got the chance to use DC pension money to buy into my employer's DB pension plan. I looked at the numbers and I found I could get a $20k index linked annual pension starting at age 55 by transferring $280k from my DC plan to the DB plan at age 52. So the payout rate was 7% and I estimated that if I lived to 83 I'd have to get an 7% annual return on the money to match the pension. As I had plenty of other DC and investment money I bought into the pension. I'm now 57 and collecting the pension each month and can be pretty sanguine about the stock market.

 

[Richard4444]

As previously stated, I have about 8% of my NW in SPIAs and have never regretted it. The funds used to purchase these annuities are from monies that I have no need to pass on as a financial legacy. I am 68 y o, receive a payout of ~ 7 % which is much higher than the interest (payout) that I would receive from a 5 year CD, and will not be bothered that upon my last breath, I leave some otherwise principal on the table.

I have always found (and please do your own homework) that Vanguard paid about 1 point more than brokered annuities.

Rich

 

[joeea]

I was never a fan of annuities but I came across an article that people who buy annuities are happier about their finances because they know their revenue stream. That is itself for me is a big enough reason to buy some annuities in the future.

It's always a question of "how much are you willing to pay for peace of mind?"

 

[pb4uski]

.... I am 68 y o, receive a payout of ~ 7 % which is much higher than the interest (payout) that I would receive from a 5 year CD, and will not be bothered that upon my last breath, I leave some otherwise principal on the table. ...

I guess if you don't care about principal then it works.