Another federal annuity study

[FinanceDude]

Quote:

Originally Posted by haha Over 50 years

Personally? WOW!! I guess I am a little more skeptical. He did a great thing to buy the Bucks and keep them from moving out of Milwaukee, all of us NBA fans are thankful for that. But, he is a meddler, and the reason the Bucks are not winning is because he can't let the NBA guys handle it, he feels the need to call all the shots..........

[clifp]

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Originally Posted by Koolau I've often wondered why insurance companies don't "underwrite" for their annuity products. After all, it's the reverse situation from life insurance products - for which underwriting is nearly always a given. I've always assumed they do some sort of "least common denominator" approach or in some fashion factor in the fact that annuity customers self-select for their generally good health. In any case, not too many insurance companies seem to consistently lose money (not and stay in business). So apparently, most know what they are doing. I'd bet the longevity/mortality issues of both life and annuity business is the LEAST problem insurance companies have in making money. They DO seem to get this right most of the time. I assume the volatility of the markets they invest in is the big issue for the most part.

I am with you, I think companies writing SPIA basically know what they are doing. When interest rates drop the SPIA payouts drop and vice versa.

What concerns me more is the ability of insurance companies to price the Equity Index Annuities properly. I am sure they love all the fees and riders they collect but are insurance companies really smarter about future market returns than the rest of us. If the new normal for the next 20 years is say 3% bond yields, and and 6-7% stock returns (with a lot volatility), than I wonder how insurance that wrote EIA with 5%+ floors are going to pay them off. I think it is similar to the long term health insurance policy. Yes health care cost can continue to rise at twice the rate of inflation for long periods of time.

[fritz]

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Originally Posted by REWahoo Actually the money has already gone to the ins. company. At some point it will end and the ins. company will stop gradually meting the money you gave them back to you - statistically before it's all been returned with interest.

+1 (and as they say - the odds always favor the house)

[rescueme]

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Originally Posted by FinanceDude You paid a fee for your SPIA, you just didn't see it..........

It's the same situation as a CD, which also has administrative costs but you don't see them.

The "profit" for a CD and an SPIA is obtained in the same way. That is the spread that the company/bank pays you and their ability to use "your" money to invest and make a profit on the excess.

Some annuities (or more specifically SPIA's) may have a stated "load", however there is none specified in either our application or contract.

If they make a profit? So be it. I have no problem with that - that's why they are in business, anyway.

[BellBarbara]

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Originally Posted by 2B I am probably the most consistent voice against annuities. The only one I see any reason for is a SPIA. The only time "normal" people would want one is to create a comfort zone on insurance company guaranteed (not FDIC) income that simulates a defined benefit pension (which is guaranteed by the Federal govt). The total of SS and annuities would equal a minimum income for their existence as a theoretical safety net. I would only recommend this if someone felt truly worried about their ability to manage their money, are very healthy and come from a longlived family. I would also limit any annuity purchase to less than 20% of any portfolio. They should also be bought as late as possible to reduce inflation risk, unforseen heath problem development and to increase payout. Other annuities for "normal" people are akin to criminal fraud IMHO. This includes all forms of variable and index annuities. The more riders attached the worse they become. Back to your comment. Have you and DH worked out a comprehensive retirement path forward? The last thing you want to do is to walk into an insurance salesman's office without a plan. If you do, he's selling hammers and all your problems will look like nails.

I know! He used to let me handle everything, and we seemed on the same page, but I think the issue is he loves his company, and believes them when they tell him we need this.

When he first went to work for them, we had to move all financial assets except checking and my employers 401k into that company, it's a requirement to monitor for insider trading (standard in industry). Of course, they saw our account and called him and wanted to present us with a proposal. I told him to pick it up and bring it home. It was AWFUL. It was a proposal to diversify into like 30 funds....some of them really bad. I was totally shocked! I showed him how bad it was and he agreed...but I think he forgot how they tried to screw us there.

He is totally reluctant to do a comprehensive plan, totally. I have done everything. Created post retirement budget with set asides for big things I think he will want, run every calculator ever mentioned here....but he just doesn't want to get that involved. But now that we are closer I think he is afraid. I may need to find a for fee FP to help me with him.

It bums me out, and I don't like to me the nag or mom.

[haha]

Quote:

Originally Posted by clifp I am with you, I think companies writing SPIA basically know what they are doing. When interest rates drop the SPIA payouts drop and vice versa.

Something not often mentioned is that annuities have an opposite systemic risk from life insurance. If something happens that either dramatically increases or decreases life spans, these efects will offset in the overall life book of business.

ha

[BLS53]

The non-housing debt seems low in the GAO examples. I think the average credit card debt among seniors is significant in a large portion of the population. Not to mention car loans.

Also, they assign an asset value to DB plans. I wonder what my military pension is worth?

[2B]

BellBarbara,

A fee only planner may be appropriate if you can get him to one. The best thing is to try to get him to read some of the better financial planning books. There's a book list here. Also, the Bogleheads Forum has suggestions. William Bernstein's latest book, The Investor's Manifesto, is a fairly easy read and it tears into many alternative products.

I was once subject to insider trading rules. There is no SEC requirement to move all your assets to a specific firm. I suspect your husband's firm looks upon their employees as sources of revenue.

[Tadpole]

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Originally Posted by BLS53 The non-housing debt seems low in the GAO examples. I think the average credit card debt among seniors is significant in a large portion of the population. Not to mention car loans.?

What makes you think either one?

[rescueme]

Quote:

Originally Posted by Tadpole What makes you think either one?

I would have to agree, but then I'm a retired "senior" who never carried CC debt (and paid cash for cars - only when I/we could afford them), before and after retirement.

Now if you are looking at the senior population (anybody 60+) who have CC debt and are still employed? Well, that's another story. I don't think that a lot of them are considering retirement till way "down the road".

[Nords]

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Originally Posted by BLS53 I wonder what my military pension is worth?

I can't figure out the value of an EIA, let alone whether it's correctly priced, but I can answer that question!

“Present value” estimate of a military pension | Military Retirement & Financial Independence

[BLS53]

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Originally Posted by Tadpole What makes you think either one?

Just from people I know, and what I read. Also, although I can't cite the specific articles, I have read that the fastest growing age group filing bankruptcy is people over 55. Which says to me there's many older folks carrying a lot of consumer debt.

[BellBarbara]

Quote:

Originally Posted by 2B BellBarbara, A fee only planner may be appropriate if you can get him to one. The best thing is to try to get him to read some of the better financial planning books. There's a book list here. Also, the Bogleheads Forum has suggestions. William Bernstein's latest book, The Investor's Manifesto, is a fairly easy read and it tears into many alternative products. I was once subject to insider trading rules. There is no SEC requirement to move all your assets to a specific firm. I suspect your husband's firm looks upon their employees as sources of revenue.

No I have talked to others in the financial products industry that worked for other brokerages, they confirm they had to do the same. We pay no fees of any type and can own any funds we want, it just has to be in an account they can monitor. I am not saying it is an SEC requirement, but that it is common practice.

My company has a ESPP and ESOP managed by e*trade and I have to send them the statements each month showing there is no account activity beyond these two programs.

He will never read books or forums, bnot his style. I think I will look for a for fee FP to help me out here. I will agree to see a rep from his company, but only under the condition that he agrees to get a second opinion.

[2B]

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Originally Posted by BellBarbara No I have talked to others in the financial products industry that worked for other brokerages, they confirm they had to do the same. We pay no fees of any type and can own any funds we want, it just has to be in an account they can monitor. I am not saying it is an SEC requirement, but that it is common practice. My company has a ESPP and ESOP managed by e*trade and I have to send them the statements each month showing there is no account activity beyond these two programs. He will never read books or forums, bnot his style. I think I will look for a for fee FP to help me out here. I will agree to see a rep from his company, but only under the condition that he agrees to get a second opinion.

It may be "common practice" in the industry but I suspect they want to monitor the personal wealth of their employees. They certainly seem ready to "help" you with your assets.

When you are governed by the SEC rules for "insiders," it is necessary to inform any brokerage firm you or your spouse have an account with of your situation. They will not execute trades that violate your restriction.

In your situation, should your DH find out that XYZ is about to make a surprise bid to acquire ABC you could either make the trade in an account you've kept hidden from the firm (not smart) or do what is normally done and agree to split the profits with your good ol' Uncle Bernie (not smart either but less likely to get caught).

I think you have a good plan on the "second opinion" approach. I recommend you find someone that is index fund oriented. Avoid the ones that chase the "hot" mutual funds. You seem to "get it" so I hope you do enough reading to design and manage your own assets.

You have also reinforced my belief that most insurance companies are scum.

[ziggy29]

Quote:

Originally Posted by BLS53 Just from people I know, and what I read. Also, although I can't cite the specific articles, I have read that the fastest growing age group filing bankruptcy is people over 55. Which says to me there's many older folks carrying a lot of consumer debt.

And thanks to age discrimination, these are the folks more likely to be laid off, less likely to be able to find another j*b and not yet able to generate much (if any) passive retirement income. This economy and retirement insecurity situation is, I suspect, creating a pocket of poverty in the 50-64 age group, more or less -- too old for the job market, too young for retirement income.