Annuity from Jackson National

[Joe Bass]

My wife and I are trying to decide if an annuity is an option to put some money in versus a CD. We have approx $50,000 that we do not need at present, but would like to access in retirement in about 5 to 7 years. We were told about the Opti Max 3 annuity from Jackson National and at the time it sounded good. 7.95% interest for the first year and 3.95% for the other six years (7year annuity) Not really understanding annuities completely we would like to hear any and all opinions or other options in this matter. I will recieve a pension when I retire and I also contribute to a 457 plan. Thanks in advance.

 

[kumquat]

You'll get lots of replies, don't sign on the dotted line until you've heard them.

I'll keep my opinion to myself.

 

[megacorp-firee]

Let me step aside before I get trampled ...
get your reading glasses on Joe Bass.

 

[REWahoo]

Joe, if you've spent much time reading on the forum, you already know the subject of annuities is a charged topic (not to mention charged fees - but I digress). Expect some very strong opinions...

 

[rs0460a]

OK

The reason you are getting "negative thoughts" on the subject of annuities is that there are lots of different vehicles with the "annuity" tag. Some, being deferred, or variable, with returns tied to a "market indicator" are not held in very high esteem (as I understand it).

Another type of annuity, known as a SPIA (Single Payment Immediate Annuity) may not be "accepted", but "tolorated" by folks on this forum. BTW, I do have an SPIA, and am quite satisfied with it. However, it does make sense for a "certain indivudial" in a "certain situation". I guess, that makes me "unique" ...

The folks on this board will certainly give you their opinions, regardless if they actually hold an annuity or not.

I'll give you my thoughts, but only if it is in reference to an SPIA, and only to the extent of my "actual experience" with this vehicle.

I guess "we" need to know what "type" of annuity you actually have (I think I know, but I'll wait for the "proof").

- Ron

 

[Nords]

My wife and I are trying to decide if an annuity is an option to put some money in versus a CD. We have approx $50,000 that we do not need at present, but would like to access in retirement in about 5 to 7 years. We were told about the Opti Max 3 annuity from Jackson National and at the time it sounded good. 7.95% interest for the first year and 3.95% for the other six years

With that level of detail in the description it'd sound good to me too.

Do you have a link to a website that fully discloses all the fine-print details of the annuity, its expenses, early-redemption penalties (if any), and other caveats?

PenFed, a popular credit union with many on this board, is offering seven-year CDs at an APY of 4.49%. At the end of seven years your $50K would be worth $67,997.52. At the end of seven years your Jackson National annuity, as it's been described to you above, would return $68,098.82 for an equivalent APY of 4.51%. You're workin' awful darn hard for an extra $101.30 or $14.47/year. You might even find a credit union on Bankrate.com that pays more than a 4.51% APY.

If interest rates scream up in a couple years (say, for example, inflation gets out of hand and the Fed raises rates) and 4.5% APY becomes a bad idea then I suspect that there would be a lot more penalties to extract yourself from an annuity before maturity than the CD.

Because it's not an annuity's APY or the security that people object to. It's the relentless sales tactics with the attendant lack of full disclosure (or even blatant misrepresentation) concerning the fees, commissions, and penalties.

 

[Texas Proud]

Nords.... good point on what you put down... but aren't annuities 'tax deferred'? If so, then he might have to factor in tax rates and such.. will he be higher in 7 years or lower? Will the extra money push him into a higher bracket


I will tell about my mother's 'annuity'... she bought one that was like a CD many many moons ago... they sold her on the tax deferral... but I made her switch it to one that had a life insurance component... therefore, if we never need the money then when she dies we never paid income tax on the 'interest'... that is the main reason we keep it.. to much deferred income right now.

The interest rate is reset every year and closely tracks what a one year CD or a treasury would pay... (right now, not much)...

(NOTE to others.... what would this kind of annuity be called? Just curious)..

Since you say you want the money later.. this is not for you... just throwing it out there for reference...

 

[rs0460a]

(NOTE to others.... what would this kind of annuity be called? Just curious)..

T.P.

I don't know what it is (some type of deferred? Sounds more like a GIC). What it isn't is an Immediate Annuity (or SPIA) since the payments have not yet begun.

My SPIA is tax deferred, since it was purchased with funds from my former employer (you know, the ones that should have been part of my "promised pension" when I started there 28+ years ago)...

Just my 2 cents...

- Ron

 

[Joe Bass]

Thanks to all that replied. We are going to rethink this, before accepting the contract. We have 30 days to decide(thank god) We want a safe place for this money that can have some growth, but with little to no risk. I've lost enough on my 457 plan lately. Thank you all!

 

[Nords]

Nords.... good point on what you put down... but aren't annuities 'tax deferred'? If so, then he might have to factor in tax rates and such.. will he be higher in 7 years or lower? Will the extra money push him into a higher bracket

Well, yeah, the next step would be to determine whether this is going to be an annuity inside an account that's already tax-deferred. Which would pretty much tell all we'd need to know about Jackson National.

I'm not sure I'd get all excited about tax avoidance if I could put myself in the 10-15% bracket. But again it depends on the fees & hoop-jumping.

We want a safe place for this money that can have some growth, but with little to no risk. I've lost enough on my 457 plan lately. Thank you all!

"Safe" and "little or no risk" are frequently code words for "CD". It pays to shop around.

We'd also appreciate the link to the fine print... you may have decided not to pursue the annuity but it could teach a lot to us on this board.

 

[brewer12345]

Joe, this is almost certainly a fixed annuity that looks pretty much like a bank CD, but with tax deferral and likely less liquidity. Its pretty plain vanilla, as far as annuities go, and Nords has shown that the equivalent maturity CD from Pen Fed has about the same pre-tax yield. So how about pros and cons of the annuity vs. the CD:

Pros:

- Interest is tax deferred
- Relatively high interest rate

Cons:

- If you need the money sooner than expected, it will be a lot more expensive to get than breaking a CD
- An insurance company is not as safe a credit risk as an FDIC insured bank deposit

Personally, I would look closely at muni bonds or a CD rather than buy this sort of annuity.