Attitudes Toward Annuities Affected by How They Are Presented

[unclemick]

You can sell anything if you package it right and put a pretty bow on top of it. It's called marketing. It has nothing to do with the worth of the package's content...

Pssst Wellesley! Current yield = 4.2% Adjusted impersonally by that good buddy of ours Mr Market - it will fluctuate so the entertainment is thrown in for free.

And I don't even own any nor get a commission - I just like to say Pssst.

heh heh heh - Early SS and a non cola Pension here as a 40% budget backstopper - OR close to 100% in my cheap bastard mode. . Now in 10 yrs or so in my 70's to 80's will I revisit the annuity question?? - sure, never say never.

 

[FIREd]

Pssst Wellesley! Current yield = 4.2% Adjusted impersonally by that good buddy of ours Mr Market - it will fluctuate so the entertainment is thrown in for free.

And I don't even own any nor get a commission - I just like to say Pssst.

heh heh heh - Early SS and a non cola Pension here as a 40% budget backstopper - OR close to 100% in my cheap bastard mode. . Now in 10 yrs or so in my 70's to 80's will I revisit the annuity question?? - sure, never say never.

And that's the beauty of Vanguard's products. They don't spend a bundle on packaging because the products are so good IMHO that they sell themselves. As far as annuities go, you gotta put a lot of lipstick on that pig to make it "attractive". Pay lots of money to a [-]schmoozer[/-] Financial Planner to push the product hard, scare people a little, then promise them "guaranteed income for life", and give them nice glossy brochures with nifty graphics and optimistic projections and voila, it sells like hot cakes...

 

[brewer12345]

im considering some guaranteed floor annuties , it has an adjustable rate with a min floor. im also considering an index linked annuity with principal protect . why? not as a proxy for a stock investment for which they suck but as a safe way of increasing my safe money bucket. it looks like even after those high fees theres enough ooomph left over to raise my income bucket up an additional 1% to 1-1/2% a year with no principal risk and a min guarantee on the interest..

If you really like this idea, do yourself a favor and "roll your own," rather than buying one of these things. You can do it a few different ways, but the easiest, cheapest and most flexible is to just buy a package of options and safe fixed income investments that duplicate the EIA without the extremely heavy internal expenses and surrender penalties these things typically carry. If you want a primer on how to do this, ask and I will try to explain (its pretty simple).

 

[OAG]

I knew I kept all this Spreadsheet information for something. Government Annuity (Military Retirement Pay) over 29 years this coming July has paid out $590,999. Now, if back in July 1979, someone said "hey we will give you $500,000" if you will sign over your rights to further payment, I may have done the WRONG thing and said "yes". This was the gross payout and does not consider the fact that part of it has VA Disability (which is tax free). BTW the initial payout was $875.00 (back in Jul 79) a month so you can see the power of the COLA.

 

[rs0460a]

Just to add some "logs to the fire"...

See the information contained in:

Immediate Annuities in Retirement

Also see the imbedded links in the article for additional info (pros/cons, primer, etc.)

Bob did a good job on the SPIA subject (IMHO) to add to this discussion.

- Ron

 

[mathjak107]

If you really like this idea, do yourself a favor and "roll your own," rather than buying one of these things. You can do it a few different ways, but the easiest, cheapest and most flexible is to just buy a package of options and safe fixed income investments that duplicate the EIA without the extremely heavy internal expenses and surrender penalties these things typically carry. If you want a primer on how to do this, ask and I will try to explain (its pretty simple).

i got to tell you, when it comes to using options im as dumb as a stump.

 

[brewer12345]

i got to tell you, when it comes to using options im as dumb as a stump.

OK, but its really, really simple.

 

[2B]

My FIL has a COLA'd military pension and without it he would either be supported by me or living under a freeway overpass since he wouldn't sell his house before a total implosion. That means he'd be living under a freeway overpass since he successfully pissed away a lot of cash flow over the last 60 years. My life's goal is not to piss away my retirement options on his retirement lifestyle.

Government and military pensions are in the "Alice and Wonderland" of pensions. The amounts are beyond belief and they are backed by the US Government. The "true" COLA provision are also outside the norm of private pensions. Anyone with a government pension needs to stop complaining about how long they need to work to earn it or how low their payout is relative to the final salary. Those of us in the private sector would only like to rip out one of your limbs and beat you to death with it when we hear you whining. Granted, we all chose our lot in life and selecting a pension plan was one of the things to consider.

 

[2B]

OK, but its really, really simple.

Brewer,

You will never convince someone that has bought into the premise of the "sophisticated investments" to become a DIYS. I've decided that Mathjak is one of those so I'll let him make his own decision since he's made up his own mind. I'm only trying to give people with less assets at their disposal enough of a warning to not become trapped with a pretty sounding but poor performing choice.

We all have to buy our own ticket and take our chances. This forum is an opportunity to discuss some of the options.

Yes, I've seen some trolling by folks I've suspected of being annuity salespeople. I've shyed away from direct confrontation but I won't let platitudes go unchallenged.

 

[brewer12345]

Brewer,

You will never convince someone that has bought into the premise of the "sophisticated investments" to become a DIYS. I've decided that Mathjak is one of those so I'll let him make his own decision since he's made up his own mind. I'm only trying to give people with less assets at their disposal enough of a warning to not become trapped with a pretty sounding but poor performing choice.

We all have to buy our own ticket and take our chances. This forum is an opportunity to discuss some of the options.

Yes, I've seen some trolling by folks I've suspected of being annuity salespeople. I've shyed away from direct confrontation but I won't let platitudes go unchallenged.

Maybe. He sure likes some strange things (unlisted REITs, etc.) that I wouldn't touch with someone else's 10 foot pole. If the "math is hard" thing is enough reason for someone to shell out thousands of extra dollars a year, well, more fool me. Maybe I am in the wrong business. After all, I wasn't using my soul...

Perhaps I will take the time to post a write-up anyway. If forum participants want it so, maybe the mods will stick it in the best of for easy reference. Otherwise it can float around in the archives.

 

[donheff]

OK, but its really, really simple.

OK, lay it out for some of us other dummies.

 

[Bestwifeever]

Perhaps I will take the time to post a write-up anyway. If forum participants want it so, maybe the mods will stick it in the best of for easy reference. Otherwise it can float around in the archives.

Me, me, me wants it too!

 

[packrat44]

IMO SS is a good annuity for the general masses who are financially clueless or too lazy/undisciplined to manage a personal portfolio. While SS has its problems, the problems would be more severe without SS.

 

[mathjak107]

Maybe. He sure likes some strange things (unlisted REITs, etc.) that I wouldn't touch with someone else's 10 foot pole. If the "math is hard" thing is enough reason for someone to shell out thousands of extra dollars a year, well, more fool me. Maybe I am in the wrong business. After all, I wasn't using my soul...

Perhaps I will take the time to post a write-up anyway. If forum participants want it so, maybe the mods will stick it in the best of for easy reference. Otherwise it can float around in the archives.

and do i loooove my untraded reit, every month now when i get the 8-1/2% dividend. if we just get the buy in price back in 6 or 7 years id consider it a great deal. last deal worked out to 7-1/2% dividend for 7 years when interest rates were less than 1%. and a nice capital gain when the properties were sold in 2007.

 

[TickTock]

If you really like this idea, do yourself a favor and "roll your own," rather than buying one of these things. You can do it a few different ways, but the easiest, cheapest and most flexible is to just buy a package of options and safe fixed income investments that duplicate the EIA without the extremely heavy internal expenses and surrender penalties these things typically carry. If you want a primer on how to do this, ask and I will try to explain (its pretty simple).

Well, I want it! Tell, tell! (he asked hopefully)

 

[Independent]

The Slate article should have said something that's common on this board.

If you have an interest in buying an SPIA, first look at deferring SS to 66, or even 70. The "annuity purchase price" for SS is usually better than you can get from a private insurer.

I doubt that annuity salespeople normally point that out.

 

[TickTock]

Now that's an interesting behavioral finance idea - that taking a sub-optimal path may be a good idea if it prevents you from taking a worse path.

So, an annuity may be worse than holding a well-diversified stock/bond portfolio - but it may be better than investing, panicing and selling investments at low prices.

My biggest worry remains the solvency of the annuity writer.

 

[2B]

The Slate article should have said something that's common on this board.

If you have an interest in buying an SPIA, first look at deferring SS to 66, or even 70. The "annuity purchase price" for SS is usually better than you can get from a private insurer.

I doubt that annuity salespeople normally point that out.

I'm being ugly about annuities again but I'll point out that the appeal of annuities is in the looooooogn term instead of the time between 62 or 65 and 70. If you look for the IRR for the short term, you will never buy an annuity if you can do simple math. The sales pitch is always about the long term of 30 or 40 years when you have lived beyond your assets. They never point out that the annuity payment that looked so good today is a mere pittance in 40 years with a trivial inflation rate. Haven't you seen the commercial about the 100 year old trumpet player? He needs an annuity because he is so vibrant, etc......

My mother died at 65. That was about 20 years short of her mortality table life. My father died at 79 which was just a few years short. My MIL died at 86 which was pretty close to mortality. My FIL is in full blown Alzheimers at 87. He may break my 10 year bridge for the mortality table where the SPIA would have paid off. Based on what I see on the quality of his life, I hope he doesn't make it. My father's and FI'Ls VAs still suck. That's a financial term that means it would have been better if they never bought them.

 

[FIRE'd@51]

If you have an interest in buying an SPIA, first look at deferring SS to 66, or even 70. The "annuity purchase price" for SS is usually better than you can get from a private insurer.

Why defer taking SS? If you want a bigger annuity at 66 or 70, just repay your SS and receive the bigger amount. The incremental increase is still cheaper (and safer) than what you could buy from an insurance company.

 

[FinanceDude]

OK, but its really, really simple.

That's what Wade Cook said..........

 

[RockOn]

That's what Wade Cook said..........

You don't like Wade Cook either? I'm shocked, what's up with this site. Just who do the ER'ers get their advice from?

I'd like to see the Brewer idea also, I've tried in the past to look at a few ways to insure away the downside of the stock market w/options but it turned out to be very expensive insurance.

 

[clifp]

I'd like to see the Brewer idea also, I've tried in the past to look at a few ways to insure away the downside of the stock market w/options but it turned out to be very expensive insurance.

I know Buffett wrote some long term puts on the US and European stock markets for some institutional investor. Perhaps we can all pool our money and see if Berkshire well sell us the same thing

 

[clifp]

I notice the FAQs don't have an annuity section. Any interest in trying to develop ER.org wisdom on annuities?

I'll start with this rule.

Rule 1. In some cases it makes sense to buy annuity. However, you should NEVER buy an annuity that somebody is selling you.

Explanation: Most annuities in the US are sold by insurance salesman, brokers, financial advisor and other people operating on commissions. These commission are typically very high, over the life of annuity as much as 1/4 to 1/3 (what is the total lifetime cost of a bad annuity) of your money will end up in the pockets of the salesman and the annuity firm. You almost always can save significant amount of money by buying an annuity directly from a firm like Vanguard or ?.

Annuity salesman are just like dope dealers just say NO

 

[brewer12345]

OK, I will post a write-up on a simplified version of how to relicate an EIA. Probably today or tomorrow. Maybe as a group effort we can refine or improve on the basic idea without making it too complicated.

 

[FinanceDude]

OK, I will post a write-up on a simplified version of how to relicate an EIA. Probably today or tomorrow. Maybe as a group effort we can refine or improve on the basic idea without making it too complicated.

If you are replicating an EIA, you are capping the upside, right??