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Old 01-30-2011, 02:12 PM   #41
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Interesting thread.
Years ago when I first signed on to this forum, the mention of an annuity would have created an internet riot and probable stoning. These days there seems to be quite a lot of support and interest.
As ou have noticed, we on the board know everything. Of course, from time to time there is a stampede into a new (temporary) definition of just what everything is this month. Like Shiller says, all is fad. I would say the recent annuity fad on this board owes much to Mr. Otar, a gentlemen whom I have never met, and whose personal success is unknown to me. But no matter!

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Old 01-30-2011, 02:17 PM   #42
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Interesting Paper related to the topic.

Quote:
APPLIED Risk Management During Retirement
Moshe A. Milevsky with Anna Abaimova
19 June 2005

ABSTRACT:
In this chapter we describe the 3+1 components of a prudent risk
management strategy during retirement. First, we re-emphasize the
importance and need for a balanced asset allocation containing
both equity and fixed income components, even towards the end of
the life-cycle. Second we illustrate the impact of implementing
portfolio protection, which minimizes retirement-ruin risk and
increases the sustainability of the portfolio. Third, we explain the
need for longevity insurance in the form of payout annuities, for
those who do not have a substantial defined benefit pension. We
also provide a formula that links all these risk factors together to
produce a self-contained probability of whether a given retirement
plan is sustainable or will lead to ruin. Finally, we emphasize the
importance of educating the public about the unique risks faced by
individuals during retirement. In sum, we present an APPLIED risk
management strategy for retirees and their financial advisors.
http://www.ifid.ca/pdf_workingpapers/WP2005JUNE20.pdf
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Old 01-30-2011, 04:58 PM   #43
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Interesting thread.
Years ago when I first signed on to this forum, the mention of an annuity would have created an internet riot and probable stoning. These days there seems to be quite a lot of support and interest.
If the daily headlines regarding the plight of many baby boomers retirement challenges are to be believed, I suspect annuities are going to play an important role as will products like reverse mortgages.
Trouble is, none of these products are cut from a single bolt of cloth and the most needy of such a plan are no doubt the most vulnerable.
Here's a snipet from a recent incident here in MO.

Well times change and so do investor perspective on risk, but yes annuities are less a subject of scorn on the forum than there were pre 2008.

However, to be fair to the forum SPIA have always treated more respectfully than the variable, EIA and the new (old) fixed index annuities.

My #1 rule about annuities has remained unchanged in a decade. Annuities should be bought but not sold.

It is entirely plausible to imagine a retiree thinking I have a decent amount of saving but I am worried of running out of money and future inflation. A SPIA with an COLA provision may very well solve the retiree's need.

It is inconceivable to me that an average American is think gee I want a financial product that is tied to 80% of the return of the S&P 500 unless of the S&P goes up more than 10% in which case I am limited to 8% gain, oh and exclude dividends for the calculations. This is why EIA are almost always sold not bought.
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Old 01-30-2011, 06:01 PM   #44
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Universal life insurance guaranteed interest rates are meaningless because of the cost of insurance charges. You could give people 10% guaranteed interest, but if your cost of insurance was extremely high, it wouldn't make a difference. Even a policy with a guaranteed minimum of 4.75% from the 1980's will probably crash and leave you with $0 cash vale and $0 insurance at some point in the future. The COI charges on those older policies have mostly been raised and interest rates fell, causing them to crash. Read your policy statement and ask the company for the following information:

1. How long your policy is guaranteed if you keep paying premiums
2. How long it's currently projected to last if you keep paying premiums
3. How long it's guaranteed to last if you stop paying premiums
4. How long it's currently projected to last if you stop paying premiums
Over 25 years and my regular monthly payment still covers the insurance and deposits a small amount into the savings feature. Cost of insurance has been far below the projection and the savings accumulation has been far greater than projected. I think that's called -win - win. My cost of insurance today is well below what a term policy would cost.
Crash and burn? Sure, someday, but I don't think I'll live that long and I would not let it fall that far as I am pretty well self insured at the moment. When that crash and burn day is spotted on the horizon, I definately will not need an agent to tell me about it, nor to tell me how to spend the very nice accumulated cash value.
I have not looked at a universal life policy in a long while, so I'm not pretending to endorse them as I have heard they ain't nothing like the old ones.
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Can this be?
Old 01-30-2011, 06:24 PM   #45
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Can this be?

A friend of mine got into a Fixed Index Annuity last year. He suggested I do the same, as I would like to be able to count on taking out $800 to $1200, a month in about 10 to 15 years time. He said he gets 8% guaranteed interest yearly and they gave him a bonus to sign up. I said, No way....so he showed me his statement...and there it was! Everything he said.....and he gets another 8% this year. Now I am thinking I should do the same thing. Have any of you heard of a Fixed Index Annuity?
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Old 01-30-2011, 06:33 PM   #46
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Hello Skye - can I ask how old is your friend ? When you enter your data here Immediate Annuities - Instant Annuity Quote Calculator., it seems you can get 8% from around 70-72 years old...

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Have any of you heard of a Fixed Index Annuity?
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Old 01-30-2011, 06:43 PM   #47
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Let's tie these two threads together:
Business Week: Retirement: "Live Long and Don't Prosper"

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Now I am thinking I should do the same thing. Have any of you heard of a Fixed Index Annuity?
Well, if you search for the keywords "fixed indexed annuity" or "FIA" then you'll find these threads:
fixed indexed annuity
FIA looks like just what I need.
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Old 01-30-2011, 10:06 PM   #48
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Ya......He is 62.
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Old 01-30-2011, 10:17 PM   #49
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Have any of you heard of a Fixed Index Annuity?
Here are a couple of Scott Burns articles you might find interesting:

What's in a word?
Equity-Indexed Annuities = Fixed Index Annuities

...and here's one more:
Real Money vs. Not-Real Money
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Old 01-31-2011, 10:08 AM   #50
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Like many other people on this board, I buy a little SPIA every month. I'm over age 62 and I haven't started Social Security. Every month that I spend money out of savings instead of starting SS I'm adding a little to my SS annuity.

I don't know if my children will think this was a good idea after I'm dead. If I die soon, they'll wish I had started SS earlier. But every time I've compared prices I've noticed that SS is a better buy than a private SPIA (assuming they both pay out as planned).

The article in the OP mentions SS in one sentence nearly at the bottom. To me, someone providing good retirement financial advice would say more about the SS option and less about private annuities.
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Old 01-31-2011, 10:37 AM   #51
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A friend of mine got into a Fixed Index Annuity last year. He suggested I do the same, as I would like to be able to count on taking out $800 to $1200, a month in about 10 to 15 years time. He said he gets 8% guaranteed interest yearly and they gave him a bonus to sign up. I said, No way....so he showed me his statement...and there it was! Everything he said.....and he gets another 8% this year. Now I am thinking I should do the same thing. Have any of you heard of a Fixed Index Annuity?
I suspect that to actually get the 8% interest you are required to annuitize the portfolio at their crappy rates and their crappy payout. If you take the money out any other way you'll get the crappy rates shown in the appendix.Either that or it's only good for one contract cycle. The next contract cycle will be much less generous cause they have you locked in.

You need to read all of the fine print here. they are designed to confuse you. The reality (I suspect) isn't what it appears to be.

also, This thread is discussing (single payment) immediate annuities. You are speaking of deferred annuities which, in my opinion, should be avoided like the plague. they are just a bad deal.
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A SPIA allows for a more aggresive (remaining) Nestegg
Old 01-31-2011, 10:49 AM   #52
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A SPIA allows for a more aggresive (remaining) Nestegg

I like the concept of a (low cost provider) SPIA as a baseline along with SS, to keep you out of poverty or to provide a base income level.

The advantage of the SPIA route is that since you have this certain base income level, you can then have your remaining nestegg in more aggressive assets, or take a more aggressive withdrawal rate, than you otherwise could.

So even though the SPIA pays less than a traditional balanced portfolio. The SPIA plus (more aggressive) portfolio, almost certainly allows you to have a higher spendable income when you want it. there is less need to maintain some large nestegg for longevity risk. You can spend the nestegg down because you always have that base income.
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Old 01-31-2011, 11:50 AM   #53
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I suspect that to actually get the 8% interest you are required to annuitize the portfolio at their crappy rates and their crappy payout. If you take the money out any other way you'll get the crappy rates shown in the appendix.Either that or it's only good for one contract cycle. The next contract cycle will be much less generous cause they have you locked in.

You need to read all of the fine print here. they are designed to confuse you. The reality (I suspect) isn't what it appears to be.

also, This thread is discussing (single payment) immediate annuities. You are speaking of deferred annuities which, in my opinion, should be avoided like the plague. they are just a bad deal.
The 8% is the increase in the income account value, which is just used to calculate the actual payout. It's not a "real" 8% because you can't just walk away with the money. There are two separate "accounts" inside an FIA with an income rider - one is the cash value accumulation account, which you can walk away with at the end of the term, and one is the income account, which is used to figure out the payout if you choose to take the lifetime income option instead. Taking the lifetime income option is NOT annuitizing. There is a difference. I explained this in one of the posts someone else referenced above.
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Old 01-31-2011, 12:45 PM   #54
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In your words then...

The income account is a financial gimmick that the insurance Co sets up. That's the account that gets "psuedo" annuitized - or whatever you want to call it for your "lifetime income stream"

And yes it is indeed different than taking the cash value and buying a real SPIA.

In any case the buyer needs to be vary vigilant that what they think they are buying is indeed what they are getting.

The linked article by Scott burns said it all:

Real Money vs. Not-Real Money - Registered Investment Advisor
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Old 01-31-2011, 12:48 PM   #55
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In your words then...

The income account is a financial gimmick that the insurance Co sets up. That's the account that gets "psuedo" annuitized - or whatever you want to call it for your "lifetime income stream"

And yes it is indeed different than taking the cash value and buying a real SPIA.

In any case the buyer needs to be vary vigilant that what they think they are buying is indeed what they get.

The linked article by Scott burns said it all:

Real Money vs. Not-Real Money - Registered Investment Advisor
Pretty much. It's not "made up" though because if you die, some companies will pay out the full income account value to your beneficiary over 5 or 10 years, so the number still does matter. With most products, they can still take the cash accumulation value immediately instead of the income value paid out over a longer period of time.

When you annuitize, you lose everything if you die a day later and don't have a period-certain annuity. With the income rider, if you start withdrawing money with the guaranteed income and die a day later, your beneficiary still gets paid out the full cash accumulation account value. That can be a huge difference for someone with a large amount of money in the annuity. The money withdrawn draws down the cash accumulation value in an amount equal to how much you took out. Once the accumulation value reaches $0, you still get the lifetime income payout, there is just nothing left to a beneficiary if you die from that point on. This is much easier to explain on paper, but hopefully you can see what I'm getting at.
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Old 01-31-2011, 08:29 PM   #56
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When I finally get my USAA SPIA, it will be joint annuitant with 20 years guaranteed. That way if I die first, the payments continue with my spouse. If we both die before 20 years, the daughter gets what's left.
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