Annuity with a guaranteed 8% annual return

[FinanceDude]

Everyone is entitled to their opinion.

Opinion is one thing....I prefer to discuss facts........

The participation rate is the amount of index change credited based on the method of crediting, so yes, it is a 100% participation if the contract states it as such. If you have "crediting method A" with a 100% participation rate, that is certainly different than having "crediting method A" with a 75% participation rate. Different crediting methods have different levels of potential return. As an example, a "monthly sum" crediting method could return 25-35% in a given year if everything went perfectly - that can't be done with other methods. However, one month with a large negative return can negate the whole year's cumulative percentage increase, whereas a "monthly averaging" method doesn't result in such dramatic spikes.

Aviva uses something like 7 or 8 different crediting rates to come up with a participation rate. So, no matter how you slice, it is NOT a comparison o a direct index like the S&P 500 or whatever. Like I have said, I READ the Aviva contract, its nothing special, nor are any other of the EIA's for that matter...........

Some people "sell" annuities, some people "sell" life insurance. I don't "sell" anything, I help people understand how to buy what they're looking for without getting caught up in the "gotchas", and I never charge them a dime. I saved one client last year over $18k per year on his health insurance. He was ready to buy another one of the same policies for about $2k/year less, had no intention of looking at other options. Someone else would have just "sold" him on the idea of saving $2k ("Hey, look at this savings! What a great deal!!!) , instead of me helping him explore how he could save even more and still get the best coverage. There is a difference, whether people think of insurance agents as slimeballs or not.

Not to nitpick, but if you didn't "sell anything", your agency would fire you.......... As far as saving a client on health insurance, I have no problem with that. However, we are talking about the merits of an EIA for the OP.......so that is the issue I have chosen to address.......

 

[dgoldenz]

Opinion is one thing....I prefer to discuss facts........

Aviva uses something like 7 or 8 different crediting rates to come up with a participation rate. So, no matter how you slice, it is NOT a comparison o a direct index like the S&P 500 or whatever. Like I have said, I READ the Aviva contract, its nothing special, nor are any other of the EIA's for that matter...........


Not to nitpick, but if you didn't "sell anything", your agency would fire you.......... As far as saving a client on health insurance, I have no problem with that. However, we are talking about the merits of an EIA for the OP.......so that is the issue I have chosen to address.......

I understand what you are saying and agree with you in a sense. To be technical, the participation rate is still different from the crediting method, since it's possible to have both a different participation rate and a different crediting method on the same contract, though most companies don't do that because it is too confusing for people to understand.

I also don't have an agency, I work for myself. There's a difference between having significant production and "selling" things.

 

[brewer12345]

I also don't have an agency, I work for myself. There's a difference between having significant production and "selling" things.

Yeah, yeah, we know: you do it out of the goodness of your heart.

 

[FinanceDude]

I understand what you are saying and agree with you in a sense. To be technical, the participation rate is still different from the crediting method, since it's possible to have both a different participation rate and a different crediting method on the same contract, though most companies don't do that because it is too confusing for people to understand.

The Aviva contract is about as confusing as you can get.......EIA's are set up by the acutuaris to make the INSURER money........IF the client makes money, it is an unintended consequence..........

 

[Gone4Good]

The Aviva contract is about as confusing as you can get.......EIA's are set up by the acutuaris to make the INSURER money........IF the client makes money, it is an unintended consequence..........

If it were otherwise the methodology would be simple. Complexity works against the investor most of the time. Almost as a matter of natural law, in cases where someone else is writing the contract, the complexity of the terms are directly proportional to how badly you're getting screwed.

 

[tjcooper]

I am new to this forum. I wrote a whole message last night and the system dumped everything. I am one of the few people who want to BUY an FIA. I have been hosed by the market in the last 15 years and want something that is moderately safe as I prepare to retire in a year or two.

Some here have very clear comments on BPA 12 about what it does and does not do, I applaud you. Others put down FIA saying I could do better with straight market securities. I want out of the roller-coaster and want something with little down-side.

My questions: BPA12 there is no accural except every 4 years of TERM? Is this risky? would it be better every year? How does the Lock-In help in the process? How does this product compare to something very different like Allianza NA with their Endurance Plus program that supposedly has 20% premium bonus as compared to BPA12 8%?

Riders: I hear some reviewers say that only 3% of the people who buy riders for any condition every use them. Is there any truth to this? Why would this happen so much? Is the LIBR rider valuable? It seems like it on paper, but I am looking for practical experience from people who have bought it and tried to use it.

Caps: I am still just beginning my learning curve in FIA and different products use terms differently. Is the monthly Cap of say 2% mean that if the index (S&P500) does 5% increase in a month, then I only get accural for the TERM of 2% that month. If next month the index is -7%, then is the amount averaged into my monthly average now down by -7% mixed with +2%? or does the Cap work as a clip on negative numbers so I would have +2% for one month and -2% for the next month that will go into my average for the TERM? Would appreciate to understand how Caps work in terms of positive and negative months and how the average goes on for the TERM.

Much thanks.

 

[traineeinvestor]

If it were otherwise the methodology would be simple. Complexity works against the investor most of the time. Almost as a matter of natural law, in cases where someone else is writing the contract, the complexity of the terms are directly proportional to how badly you're getting screwed.

+1

As a general rule, if I can't get at least a reasonable understanding of an investment in less than 30 minutes then it is probably something that is more likely to damage my financial position than enhance it. I have never come across an investment product sold by an insurance company which has passed this test.

 

[dgoldenz]

The Aviva contract is about as confusing as you can get.......EIA's are set up by the acutuaris to make the INSURER money........IF the client makes money, it is an unintended consequence..........

I agree that the Aviva contract is very confusing for your average consumer (and likely for most agents). I looked at one the other day when reviewing the currently available for products and the contract was 125 pages . By contrast, RBC's contract is only about 30 pages for the same type of product and pretty easy and straight forward to understand. KISS!

I am new to this forum. I wrote a whole message last night and the system dumped everything. I am one of the few people who want to BUY an FIA. I have been hosed by the market in the last 15 years and want something that is moderately safe as I prepare to retire in a year or two.

Some here have very clear comments on BPA 12 about what it does and does not do, I applaud you. Others put down FIA saying I could do better with straight market securities. I want out of the roller-coaster and want something with little down-side.

My questions: BPA12 there is no accural except every 4 years of TERM? Is this risky? would it be better every year? How does the Lock-In help in the process? How does this product compare to something very different like Allianza NA with their Endurance Plus program that supposedly has 20% premium bonus as compared to BPA12 8%?

Riders: I hear some reviewers say that only 3% of the people who buy riders for any condition every use them. Is there any truth to this? Why would this happen so much? Is the LIBR rider valuable? It seems like it on paper, but I am looking for practical experience from people who have bought it and tried to use it.

Caps: I am still just beginning my learning curve in FIA and different products use terms differently. Is the monthly Cap of say 2% mean that if the index (S&P500) does 5% increase in a month, then I only get accural for the TERM of 2% that month. If next month the index is -7%, then is the amount averaged into my monthly average now down by -7% mixed with +2%? or does the Cap work as a clip on negative numbers so I would have +2% for one month and -2% for the next month that will go into my average for the TERM? Would appreciate to understand how Caps work in terms of positive and negative months and how the average goes on for the TERM.

Much thanks.

The BPA12 is a different annuity than the one described by the person who started this post. There are a pretty substantial amount of fees built into the product depending on which options you choose. One 4-year period is taken from the 12 years with no cap on the interest rate, but it is blended with a fixed rate to determine the final rate credited. There is a charge for receiving the bonus and higher-than-average charges for the riders that are offered. It is pretty confusing IMO. The Allianz product you referenced is completely different and designed for guaranteed income - the 20% is a bonus on the income account, not the accumulation account.

RBC still has the best and easiest to understand indexed annuity with guaranteed income if you ask me. There is a 5% bonus on the accumulation account, 10% on the income account, and the "roll-up" rate is guaranteed for 12 years at 7.5%. As an example for a 60 year old male, $100k in the RBC product guarantees an income for life of $14,410 if the income rider is triggered at age 72.

American Equity has an income product with 8% guaranteed "roll-up" rate and 10% bonus, but the surrender charge and bonus vesting schedule is much longer at 15 years and the company is rated A-, while RBC is an A-rated company.


To answer your other question, when you have a monthly cap of 2%, those monthly returns are added together to get the annual return. So if the market went up 2% or more every month, your return would be 24%. If you had a single month with a -24% return for example, your return for the year would be 0% since you would not be able to make it up even if the caps were maxed out in all other months. The monthly sum crediting methods have potential for greater gains, but are more risky than point-to-point or monthly averaging in that you are more likely to get a 0% for the year.

 

[queeneev]

My questions: BPA12 there is no accural except every 4 years of TERM? Is this risky? would it be better every year? How does the Lock-In help in the process? How does this product compare to something very different like Allianza NA with their Endurance Plus program that supposedly has 20% premium bonus as compared to BPA12 8%?

Riders: I hear some reviewers say that only 3% of the people who buy riders for any condition every use them. Is there any truth to this? Why would this happen so much? Is the LIBR rider valuable? It seems like it on paper, but I am looking for practical experience from people who have bought it and tried to use it.

Caps: I am still just beginning my learning curve in FIA and different products use terms differently. Is the monthly Cap of say 2% mean that if the index (S&P500) does 5% increase in a month, then I only get accural for the TERM of 2% that month. If next month the index is -7%, then is the amount averaged into my monthly average now down by -7% mixed with +2%? or does the Cap work as a clip on negative numbers so I would have +2% for one month and -2% for the next month that will go into my average for the TERM? Would appreciate to understand how Caps work in terms of positive and negative months and how the average goes on for the TERM.

Much thanks.

Your questions make me think, "wow, you have to have a masters degree to understand this chit", and I'm a smart girl. I was thrown a product (like) this when I FIRE'd, and the salesman was so pleasant excited to chat with me and tell me all the good parts (most glaring lie was that he didn't even differentiate the rider benefits that would add more cost; he just lumped all great things into one sales pitch). He definitely had me interested, and then I took a deep breath and read the fine print. I was and still am in the deep dark about annuities and just know I am way too young to want any annuity, so I will revisit in 20 years (with a wary eye).

$27,000 may look great to you now, but consider that at 3% inflation rate, that first payment 10 yeaers out will only buy you $18,000 of goods in today dollars (math may be off but you see the point). And it will only get worse from there.

 

[REWahoo]

I am new to this forum. I wrote a whole message last night and the system dumped everything. I am one of the few people who want to BUY an FIA. I have been hosed by the market in the last 15 years and want something that is moderately safe as I prepare to retire in a year or two.

I'm sure you've seen articles like these, right?

Indexed annuity: Buyer beware

Equity Indexed Annuities – Problems, Risks and Benefits

Consumer Reports Money & Shopping Blog: Q&A: What are fixed indexed annuities?

EDIT: Take a look at the comments on the last link - the Consumer Reports blog. I think it interesting the entries defending/touting the benefits of FIA's appear to be from those who sell them. Where are all the satisfied customer's comments?

 

[dgoldenz]

I'm sure you've seen articles like these, right?

Indexed annuity: Buyer beware

Equity Indexed Annuities – Problems, Risks and Benefits

Consumer Reports Money & Shopping Blog: Q&A: What are fixed indexed annuities?

EDIT: Take a look at the comments on the last link - the Consumer Reports blog. I think it interesting the entries defending/touting the benefits of FIA's appear to be from those who sell them. Where are all the satisfied customer's comments?

I usually find that the comments after articles are more helpful than the articles themselves.

For anyone considering the purchase of an indexed annuity, just remember to keep it simple. If you can't understand the contract for the product you're looking at, find another product where you can understand it in simple terms. An annuity contract should not be 100+ pages. If it can't be explained in less than 10 minutes, it's probably best to look at something else.

EDIT: Take a look at the comments on the last link - the Consumer Reports blog. I think it interesting the entries defending/touting the benefits of FIA's appear to be from those who sell them. Where are all the satisfied customer's comments?

If you don't think there are satisfied customers, you've got to be kidding yourself. Who is more satisfied, the person who bought an EIA and lost nothing in the market crash, or the person who is still trying to get back to even? One of our clients put $250k of a $1M portfolio into an EIA three years ago....the $250k now stands at $283k. Where do you think the other $750k stands? Which do you think they're happier with?

 

[jIMOh]

OK:

1)What is the TOTAL EXPENSE of this annuity, inluding M&E AND management expenses?

2)You said the RETURN was guaranteed........that means I can WALK AWAY with my guaranteed return, right?

3)How long do I have to hold this annuity? Is there a NO SURRENDER option? (Most VAs have a NO SURRENDER option, but most agents don't mention that because they get paid 80% less up front on those share classes.

4)How are YOU compensated on this sale?

5)Why is this better for me than a traditional balanced portfolio of low cost mutual funds?

6)Show me in the prospectus where the CDSC schedule is located.

7)Give me a prospectus to look over, if I'm still interested after reviewing that I will be sure to call you. Don't contact me, I'll contact you........

There's more, but that's a start.........

8) In 24 years when inflation has doubled the cost of goods, what will the annuity be paying me?

 

[dgoldenz]

8) In 24 years when inflation has doubled the cost of goods, what will the annuity be paying me?

You could say that about any annuity that isn't inflation-adjusted, including a SPIA.

 

[FinanceDude]

8) In 24 years when inflation has doubled the cost of goods, what will the annuity be paying me?

More than your CD or MM account?

 

[nun]

What's the opinion of TIAA-CREF annutites. They seem to have fees that are lower than most and aren't out there selling them door to door.

 

[ziggy29]

What's the opinion of TIAA-CREF annutites. They seem to have fees that are lower than most and aren't out there selling them door to door.

I'll say what I usually say: I think for the *right* situation, using an SPIA for *part* of your retirement income stream might make sense. It's basically like "buying a pension" with some of your retirement savings. However, they aren't for everybody, and right now annuitized payouts are horrible because interest rates are so low.

There's a chance I may consider an SPIA when the time comes, but I wouldn't do it with interest rates this low. The amount you have to pay for an income stream is particularly high right now.

I'm rarely a proponent of other annuity products -- even the lower-fee products -- except for some very specific and unusual situations usually involving estate planning or asset protection needs.

And in pretty much all cases, if it's an "equity indexed" annuity or some other gimmicky product that doesn't involve self-directed investing in low-cost mutual funds, RUN.

 

[FinanceDude]

What's the opinion of TIAA-CREF annutites. They seem to have fees that are lower than most and aren't out there selling them door to door.

They don't need to, they have a huge 403 business and all those are in annuities. They don't have any income or death benefit guarantees, so they are a lot like VG and Fido's offerings.

I have no problem with TIAA-Cref, other than they try to bully beneficiaries when the policy-holder dies..........

 

[nun]

I'll say what I usually say: I think for the *right* situation, using an SPIA for *part* of your retirement income stream might make sense. It's basically like "buying a pension" with some of your retirement savings. However, they aren't for everybody, and right now annuitized payouts are horrible because interest rates are so low.

Yes that's what I thought too, good time for mortgages, bad time to do a 72t or buy an annuity. I have about 10% of my retirement in a TIAA Traditional RA that this year is yielding 3.5% (the guaranteed minimum is 3%), so it's a plodder. I'm not sure if I'll annuitize it or take it out over 10 years, but it has worked well as part of my fixed income allocation.

 

[Badger]

I was sold on a TIAA-CREF annuity for retirement instead of staying with the Florida Retirement System as were a few other of my friends. It was 15 years ago and we were misdirected by the rep on the comparison between the two and not all the cards were put on the table.

As a result, after 18 years in the school system, my pension with TIAA-CREF will be about $500/month with no cost of living increases whereas the FRS would have been $1500/month with cost of living increases.

I was recently told that I could buy back into the FRS but it would cost me an additional $130,000! If I did it would take me at least 8 or 9 years to recoup that money that I could have used in addition to the pension.

Needless to say I have been bamboozled and I am not a fan of TIAA-CREF.

Now I am trying to figure out what to do.

Cheers!

 

[tjcooper]

anyone know an annuity with 10% income rollup?

I found a while back an annuity that claimed a 10% rollup for the INCOME VALUE with many, many restrictions. Does anyone remember the policy or the URL to that annuity? Much thanks.
tjcooper

 

[73ss454]

www.takemymoney.com

 

[dgoldenz]

I found a while back an annuity that claimed a 10% rollup for the INCOME VALUE with many, many restrictions. Does anyone remember the policy or the URL to that annuity? Much thanks.
tjcooper

An annuity with 8% compounded on the income value would be better than a 10% fixed on the income value if you're looking more than a couple years out. Depends on the payout rate given what age you plan on withdrawing too. A lot of annuities have had rate decreases and lowered their guarantees with the dropping interest rates.

 

[tjcooper]

URL did not have the information

73ss454
I looked at the "takemymoney" URL and used its search to look for a 10% rollup. I could not find anything close. Can you give the precise URL listing where it talks about that? Much thanks.

And yes, a 10% fixed under performs an 8% compounded rollup in about 3.5 years. It was not the 10% I was looking for, just the company that offered it. At 8% compounded, you can double your money in 10 years. My problem is that I will not have that long before I need to take the annual withdrawal from the annuity.
tjcooper

 

[dgoldenz]

73ss454
I looked at the "takemymoney" URL and used its search to look for a 10% rollup. I could not find anything close. Can you give the precise URL listing where it talks about that? Much thanks.

And yes, a 10% fixed under performs an 8% compounded rollup in about 3.5 years. It was not the 10% I was looking for, just the company that offered it. At 8% compounded, you can double your money in 10 years. My problem is that I will not have that long before I need to take the annual withdrawal from the annuity.
tjcooper

How far out are you looking? The best product will depend on your age and how long you plan to defer before taking income. One company might pay out 5% at age 60 while another will pay out 5.5%. Makes a big difference on how much you receive each year. If you are looking within 3.5 years, an annuity with a larger bonus may make more sense than one with a higher roll-up.

 

[Nords]

73ss454
I looked at the "takemymoney" URL and used its search to look for a 10% rollup. I could not find anything close. Can you give the precise URL listing where it talks about that? Much thanks.

I think the problem with your search for that annuity is the belief that 73ss454 was referring you to an annuity-search website...

He's telling you that what you seek either doesn't exist or is unlikely to be financially survivable from the insurance company claiming to sell it.

I wonder how Vanguard is doing with those guaranteed payout funds they were touting a few years ago.