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Old 08-21-2011, 02:48 PM   #61
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Originally Posted by mathjak107 View Post
the 3.60 doesnt include the fund fees yet either.... depending what you pick the fund fees can run almost 2%.
so you are saying that the return you get from the fund that the guarantee is applicable to is computed before the fees are removed from that fund? well isnt there a low fee fund in the mix?

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Originally Posted by mathjak107 View Post
again the 10% return isnt money you get now. its a credit you get decades later if and when you convert to an annuitized income. in the mean time put in 100k and those fees your paying now will double as they credit you with those phantom bucks. imagine paying 7200 bucks by year 10.
so if you use a low fee fund (or no fund at all, i am not clear on what options are available) and are using this as a way to create a pension like cash flow in the future, you are getting a >6%/yr guaranteed return on your money, right?
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Old 08-21-2011, 02:56 PM   #62
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okay let me explain. there are two stages to a variable annuity.
the first part comes into play in your accumulation stage when you have decades to go before retirement.

you can buy all kinds of different mutual funds in the confines of that annuity.

unlike just buying a mutual fund on your own you pay slightly higher fund fees

you pay for insurance so if you die it goes to your wife. you pay fees to have any guarantees such as guaranteeing you a minimum return over to your spouse. you pay administrative fees , fees to give your heirs back money you put in if you died in the beginning years and there are a few more tacked on.


part ii of the annuity happens when you are ready to retire.

you can take the money and run in which case you get none of that money they promised you as your minimum returns the first 10 years.

or you can convert to an annuity and draw an income. if you do there are more fees and charges for it to extend to your spouse.

all the while you are paying fees in the accumulation stage on those step up bucks they added to your returns since your yearly charges are based on your account balance.

but your paying fees on money you will never even see if you take the money and run and dont annuitize. if you do you will pay more fees for converting .




they gotcha.


hope that explains it.
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Old 08-22-2011, 03:39 PM   #63
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again the 10% return isnt money you get now. its a credit you get decades later if and when you convert to an annuitized income. in the mean time put in 100k and those fees your paying now will double as they credit you with those phantom bucks. imagine paying 7200 bucks by year 10.
Not that it matters, but in most cases you do NOT have to annuitize to get the income base withdrawals, but it does come off the contract value.........
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Old 08-22-2011, 03:41 PM   #64
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okay let me explain. there are two stages to a variable annuity.
the first part comes into play in your accumulation stage when you have decades to go before retirement.

you can buy all kinds of different mutual funds in the confines of that annuity.

unlike just buying a mutual fund on your own you pay slightly higher fund fees

you pay for insurance so if you die it goes to your wife. you pay fees to have any guarantees such as guaranteeing you a minimum return over to your spouse. you pay administrative fees , fees to give your heirs back money you put in if you died in the beginning years and there are a few more tacked on.


part ii of the annuity happens when you are ready to retire.

you can take the money and run in which case you get none of that money they promised you as your minimum returns the first 10 years.

or you can convert to an annuity and draw an income. if you do there are more fees and charges for it to extend to your spouse.

all the while you are paying fees in the accumulation stage on those step up bucks they added to your returns since your yearly charges are based on your account balance.

but your paying fees on money you will never even see if you take the money and run and dont annuitize. if you do you will pay more fees for converting .




they gotcha.


hope that explains it.
Not quite, there are a few errors in your explanation, but not major ones..........
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Old 08-22-2011, 05:34 PM   #65
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i had such a hard time figuring out the prospectus and the wording. can you correct me here and show me where i didnt grasp it .? im really trying to get a handle on this but it isnt easy .
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Old 08-22-2011, 09:28 PM   #66
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i had such a hard time figuring out the prospectus and the wording. can you correct me here and show me where i didnt grasp it .? im really trying to get a handle on this but it isnt easy .
You did really well. The prospectuses SUCK, very hard to understand, and I have a degree in finance!!

I am a little tired but will try to make a few helpful comments tomorrow.........
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Old 08-22-2011, 10:56 PM   #67
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okay let me explain. there are two stages to a variable annuity.
the first part comes into play in your accumulation stage when you have decades to go before retirement.

you can buy all kinds of different mutual funds in the confines of that annuity.

unlike just buying a mutual fund on your own you pay slightly higher fund fees

you pay for insurance so if you die it goes to your wife. you pay fees to have any guarantees such as guaranteeing you a minimum return over to your spouse. you pay administrative fees , fees to give your heirs back money you put in if you died in the beginning years and there are a few more tacked on.


part ii of the annuity happens when you are ready to retire.

you can take the money and run in which case you get none of that money they promised you as your minimum returns the first 10 years.

or you can convert to an annuity and draw an income. if you do there are more fees and charges for it to extend to your spouse.

all the while you are paying fees in the accumulation stage on those step up bucks they added to your returns since your yearly charges are based on your account balance.

but your paying fees on money you will never even see if you take the money and run and dont annuitize. if you do you will pay more fees for converting .




they gotcha.


hope that explains it.
actually i dont think you addressed any of my questions

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so you are saying that the return you get from the fund that the guarantee is applicable to is computed before the fees are removed from that fund? well isnt there a low fee fund in the mix? all it takes is 1 "fund" with low or no fee to just sit back and collect the guaranteed return.



so if you use a low fee fund (or no fund at all, i am not clear on what options are available) and are using this as a way to create a pension like cash flow in the future, you are getting a >6%/yr guaranteed return on your money, right?
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Old 08-23-2011, 03:28 AM   #68
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no there are no low fund fee choices....

finance dude will confirm but the way it looks that 10% they guarantee you vanishes awfully quick in fees.

lets say you give them 100k and pick some stock funds. your fees look like 3600 a year for the annuity plus 1.90% for fund fees. the lower fees are bond funds. thats almost 5600 the first year in costs. the historical average is about 9% for the markets and your paying 5.6 right out of the box.

next year you get stepped up by that 10% guarantee and fees are now 6160 a year. the kicker is you pay more in fees now.

by year 10 you can be paying over 10k a year in fees. but the money they bumped you up with to make up that 10% vs your actual return isnt money you can take out . no way... that money gets credited to your account if and when you take the money as a pensionized annuity. thats decades down the road.

ill let finance dude explain that process.

now the guarantee stops after 10 years and you are left paying for decades yearly fees that are outragious. worst part is if you decide to take the money in a lump sum and run after those decades. you get none of those bucks they stepped you up with but you paid all those fees on it all those years.
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Old 08-23-2011, 06:14 AM   #69
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given the 3.6% fees you stated earlier doesnt that just mean that the actual guaranteed rate is 10%-3.6%=6.4%/yr? or am i missing something?
You're missing something.

There are fees, for sure, but it doesn't work quite like that. Annuities are for income, so it helps to think of them primarily as income vehicles rather than traditional investments.

Best way to think about it is for every $100,000 you deposit, you will be guaranteed at least $10,500 income per year beginning in 10 years. And that does NOT assume annuitization. Check my math, but I used their 5.25% income payout and doubled the $100K.

Folks that want to maximize their returns and/or maximize their lump sum investments, ought to look at something different. Annuities can help with guaranteed retirement income and there are lots of reports out there that suggest they can help a lot of folks in retirement (mainly because we all know that most folks are terrible at managing their own money and make lousy investors).
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Old 08-23-2011, 06:36 AM   #70
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I would assume people putting their money in annuities (or, like me, considering them) are aware they won't get their capital back at maturity like they do with a CD or bond. Annuities may make sense for people who do not have heirs or do not want to leave anything.
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That's where most people go wrong in their thinking.
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Old 08-23-2011, 06:52 AM   #71
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You have to think of annuities as buying a pension. when you buy in at work as an example you dont try to compute a return. you buy an income for you and your spouse for as long as you live.

same with an annuity. your buying a pension
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Old 08-23-2011, 06:59 AM   #72
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Yes - I agree with this.
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You have to think of annuities as buying a pension.
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Old 08-23-2011, 08:09 AM   #73
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I would assume people putting their money in annuities (or, like me, considering them) are aware they won't get their capital back at maturity like they do with a CD or bond.
Of course not - they have different uses in retirement planning.

Folks keep forgeting that an annuity is an income vehicle. It's not an investment nor is it designed to retain a specific value for use later in life, as a CD would do. Speaking of an SPIA (not a delayed or a VA annuity, which I would not consider - based upon my research and personal situation), it would be like a CD, but being able to withdraw a part of the CD value, along with accrued interest. You can't equate both vehicles (SPIA/CD) and a lot of folks get confused with that use.

As for my/DW's SPIA, purchased with a life term minimum payout we (or our estate) will have a minimum defined payout over our calculated joint-life, at the time of purchase (28 years). BTW, if either/both are still alive after our calculated terminal date, payments continue (at 100%) until we both pass.

Yes, the monthly payment is a few dollars less due to this option, but we don't have to worry (even though we'll be dead ) that our "remaining income" will go to the insurance company, but rather to our estate - for the benefits of others still living.

So in essence, we do get the value of our "CD" (e.g. preimum), but we get it back as we age with an option to pay it to our estate (or others) if we're not around to collect.

Different products - different goal - different use...
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Old 08-23-2011, 08:28 AM   #74
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If you are considering VAs... take a look at Milevsky's articles on Advisor One.

He explains how he analyzes them and grades specific products.

Moshe A. Milevsky

I think it is useful to read his description to see his take on these types of products. In his articles he does not focus on analyzing the viability of the company so much (i.e., strong company vs weak company.. although this is important too)... instead he focuses on the products cost and features that might be able to be leverage to give one a hedge (floor) and at the same time take more risk (than might otherwise be taken) and use a step-up feature to lock in gains and attempt to get a better outcome.
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Old 08-23-2011, 08:38 AM   #75
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I would assume people putting their money in annuities (or, like me, considering them) are aware they won't get their capital back at maturity like they do with a CD or bond. Annuities may make sense for people who do not have heirs or do not want to leave anything.
Sorta.

Annuities are very much sorta designed to be a personal pension plan.

However, there is the possibility to have something left in the account for yourself or your heirs. In other words, you do have more options than a traditional pension plan. Pension decisions are often irrevocable. That's not often the case with annuities.

But, for a lot of people, it's often better to compare them to pensions than to compare them to investments. That's why when folks get way bogged down in all the fees (there are a lot of fees, for sure) they are sort missing the point.

They aren't for everybody. But it is very rare to find black n white rules when it comes to personal finance stuff.
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Old 08-23-2011, 08:49 AM   #76
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Annuities are very much sorta designed to be a personal pension plan.

However, there is the possibility to have something left in the account for yourself or your heirs. In other words, you do have more options than a traditional pension plan.
Exactly...

It is a personal pension plan that is self-funded, but has advantages over a company supplied DB plan...
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Old 08-23-2011, 08:50 AM   #77
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Hopefully I will not get too long-winded with regards to clearing up a few points regarding VAs. mathjak did an excellent over view of the product. While I realize most people on this board recoil in horror at any discussion of this product, it might have merit for some people in some circumstances.

Based on the posts here, it sounds like mathjak was presented a Nationwide LINC VA (Lifetime Income Rider)

There are 2 "columns" that are of interest. The first is the contract value (CV). This represents "your real money". The amount changes on a daily basis due to market fluctuations. At any time, much like other products, your value could be less or more than what you invested. The second column is the one that is more confusing. Most companies refer to it as an "income base" or "guaranteed withdrawal base" or something like that. It is NOT an amount you can walk with if you decide to cash in the policy, and it is higher than the contract value.

In Nationwide's case, they credit your "income base" by 2.5% a quarter or 10% a year for the first 10 years. So, in effect, they are promising that if you put in $100,000, after 10 years they will let you take a guaranteed payment of 5.25% (assuming you are 65 or older) of the $200,000 base, even if your contract value is $100,000 or $150,000 or even zero. You do NOT have to annuitize (give up the contract to Nationwide) to get the 5.25% of the $200,000. If your contract value is higher than $200,000 at the time you take income (unlikely), you get 5.25% of that number, or $10,500 a year for your life and your spouse's life. If there is any money left over, it goes to the contingent beneficiary.

We must keep in mind that Nationwide does NONE of this for free. The internal expenses end up around 4% or so. So, the asset drag is significant. In order the get the "10%", you have to pay 4% in fees and expenses. The 10% is not a REAL number, it is a percentage applied to the income base. The real way to look at it is that you are paying 4% in fees every year to get 5.25% in income payments, albeit guaranteed for life. Pretty hefty cost for a guarantee. Despite that, these products have hundreds of billions invested in them and people continue to buy (are sold) them. With pensions all but gone, it allows someone to get guaranteed income for life. It is however a spendy proposition. In effect, like brewer has illustrated, one could do this themselves if they use a fairly simple option strategy and index funds, and do it a lot cheaper. But, most investors don't understand or like options, so they won't do that.

VAs today are more expensive than ever. Insurance companies underpriced their risk significantly pre 2008 and now have raised their fees and expenses considerably since most of them took huge losses in the financial market debacle. They do work in a number of respects like a pension. Folks that have COLA's pensions in effect have a SPIA with favorable rates. However, a lot of pensions ahve a variable component that can affect their monthly payments up or down. That is similar to a VA, except the VA has higher cost, but is available to everyone. YMMV..........
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Old 08-23-2011, 09:34 AM   #78
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A good summary, FD. I see limited applicability for most people, but that does not stop the sales of these things.
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Old 08-23-2011, 01:23 PM   #79
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Ask if they are promising a 10% return, or 7% compounded, or if they give you stacking.

For example
one product might be
7% compounded returns (doubles in 10 years) or the value of the VA (whichever is higher) in 10 years.

A different product might be
5% compounded returns each year or the value of the VA, evaluated each year on the anniversary. At end of each year the contract gives you either 5% on top of previous anniversary value, or the value of the mutual funds (whichever is higher).

There is a third product I am aware of which stacks daily (not yearly).

Not all products are the same, so generalizing they are "all bad" seems to be ignorance on part of some of the posters. In addition many VAs are "nursing home friendly" meaning if you need the money to fund something like a nursing home stay, that can be done at minimal to no additional cost.

If a person puts a high amount of bond funds into a VA, they are probably not using the product correctly. Choose high beta type investments (volatile investments).
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Old 08-23-2011, 02:08 PM   #80
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Hopefully I will not get too long-winded with regards to clearing up a few points regarding VAs. mathjak did an excellent over view of the product. While I realize most people on this board recoil in horror at any discussion of this product, it might have merit for some people in some circumstances.

Based on the posts here, it sounds like mathjak was presented a Nationwide LINC VA (Lifetime Income Rider)

There are 2 "columns" that are of interest. The first is the contract value (CV). This represents "your real money". The amount changes on a daily basis due to market fluctuations. At any time, much like other products, your value could be less or more than what you invested. The second column is the one that is more confusing. Most companies refer to it as an "income base" or "guaranteed withdrawal base" or something like that. It is NOT an amount you can walk with if you decide to cash in the policy, and it is higher than the contract value.

In Nationwide's case, they credit your "income base" by 2.5% a quarter or 10% a year for the first 10 years. So, in effect, they are promising that if you put in $100,000, after 10 years they will let you take a guaranteed payment of 5.25% (assuming you are 65 or older) of the $200,000 base, even if your contract value is $100,000 or $150,000 or even zero. You do NOT have to annuitize (give up the contract to Nationwide) to get the 5.25% of the $200,000. If your contract value is higher than $200,000 at the time you take income (unlikely), you get 5.25% of that number, or $10,500 a year for your life and your spouse's life. If there is any money left over, it goes to the contingent beneficiary.

We must keep in mind that Nationwide does NONE of this for free. The internal expenses end up around 4% or so. So, the asset drag is significant. In order the get the "10%", you have to pay 4% in fees and expenses. The 10% is not a REAL number, it is a percentage applied to the income base. The real way to look at it is that you are paying 4% in fees every year to get 5.25% in income payments, albeit guaranteed for life. Pretty hefty cost for a guarantee. Despite that, these products have hundreds of billions invested in them and people continue to buy (are sold) them. With pensions all but gone, it allows someone to get guaranteed income for life. It is however a spendy proposition. In effect, like brewer has illustrated, one could do this themselves if they use a fairly simple option strategy and index funds, and do it a lot cheaper. But, most investors don't understand or like options, so they won't do that.

VAs today are more expensive than ever. Insurance companies underpriced their risk significantly pre 2008 and now have raised their fees and expenses considerably since most of them took huge losses in the financial market debacle. They do work in a number of respects like a pension. Folks that have COLA's pensions in effect have a SPIA with favorable rates. However, a lot of pensions ahve a variable component that can affect their monthly payments up or down. That is similar to a VA, except the VA has higher cost, but is available to everyone. YMMV..........

much thanks. im going to print this out and re-read it until i fully understand all your points.


are the mutual fund expenses you paid in that 4% figure? i dont think so ....

thanks again
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