Attitudes Toward Annuities Affected by How They Are Presented

[brewer12345]

I haven't looked at the living benfits plans hard enough to understand them yet. I did a rough IRR if my account did fairly poorly (maybe 4% a year nominal after fees) and I resorted to the guaranteed outcome. I came up with just under 5%. Does that sound about right? (That would be the worst case assuming the insurance company stays solvent as I understand it)

Dunno. These things are inordinately complicated and it would be really hard to be sure you had appropriately modeled them.

 

[RockOn]

Dunno. These things are inordinately complicated and it would be really hard to be sure you had appropriately modeled them.

I jst did a rough cash flow calc based on what I thought would happen under the guarantee. You are correct, what I think is supposed to happen may not be what would actually happen. How can anyone buy something this hard to understand?

I'd have to do a lot more learning before I would ever commit to something like this.

 

[brewer12345]

I jst did a rough cash flow calc based on what I thought would happen under the guarantee. You are correct, what I think is supposed to happen may not be what would actually happen. How can anyone buy something this hard to understand?

I'd have to do a lot more learning before I would ever commit to something like this.

Put it this way: I see stuff just as complicated trade all the time. Supposedly the people trading it are sophisticated and experienced at modelling and understanding what it is they are dealing in. They have teams of analysts, expensive software, etc. The y still screw up from time to time.

Now imagine doing the same thing with a significant fraction of your life savings without doing the slightest bit of analysis and you can imagine why I have such a lofty opinion of the annuity industry.

 

[clifp]

The "Reader's Digest" version of that complication means that Prudential has the right to move money from your asset allocation to a bond fund when the formula indicates it's a "good time" to do so.

At least that's what I understand it to be............

What I really like about these products is how simple they are to understand..

 

[2B]

What I really like about these products is how simple they are to understand..

That's why they make so much money for the salesman and the insurance company. If people could easily understand them, they wouldn't sell any.

My impression of the typical sales presentation is the empasis on safety, guaranteed return, no loss... did I mention guaranteed? By the time they are done, the (usually) elderly person signs on the dotted line(s) convinced they will be able to stay in their home until they die. The details of fees and penalties are never brought up in a meaningful way.

When I've been asked about how to get a "financial advisor" to stop trying to sell someone an annuity, I've figured out that if the person asks for a complete list of any fees and penalties associated with their product they never hear from them again.

I periods of market turmoil and large drops the sales pitches for annuities gets real active. They are selling safety and security in a troubled world.... Did I mention guaranteed?

 

[RockOn]

That's why they make so much money for the salesman and the insurance company. If people could easily understand them, they wouldn't sell any.

I understand why you are not for annuitites. Some of us already own them so we have different choices to make. What do you think, go with the plain vanilla lowest costs, or look into the riders to see if any of them make sense for me?

 

[FinanceDude]

I understand why you are not for annuitites. Some of us already own them so we have different choices to make. What do you think, go with the plain vanilla lowest costs, or look into the riders to see if any of them make sense for me?

Do a cost benefit analysis of what you have and what you could have. Decide what's important to you, and see if there is a way to accomplish it.

 

[RockOn]

Do a cost benefit analysis of what you have and what you could have. Decide what's important to you, and see if there is a way to accomplish it.

I'd love to do a cost/benefit analysis but they are extremely complicated from what I see. I don't trust anyone enough to do that for me. I think I'll be sticking with looking for the lowest costs, at least for now. If they were simplified I might be interested in a guarantee rider as I do value lowering risks, but then again if they were simplified, I very well might not be interested after seeing all the facts.

I like probing (from the annuity sales force) on what some of the best riders might be so I can begin to look at them. Do you know of any impartial resource to sort through the details of how they work? You have been helpful, I appreciate that.

Am I correct that if I were to buy one, I would have to sign a statement saying that whatever the saleman told me does not change the terms of the contract? I've seen language like that before.

 

[2B]

I'd love to do a cost/benefit analysis but they are extremely complicated from what I see. I don't trust anyone enough to do that for me. I think I'll be sticking with looking for the lowest costs, at least for now. If they were simplified I might be interested in a guarantee rider as I do value lowering risks, but then again if they were simplified, I very well might not be interested after seeing all the facts.

I like probing (from the annuity sales force) on what some of the best riders might be so I can begin to look at them. Do you know of any impartial resource to sort through the details of how they work? You have been helpful, I appreciate that.

Am I correct that if I were to buy one, I would have to sign a statement saying that whatever the saleman told me does not change the terms of the contract? I've seen language like that before.

I hate to say it but if the choices are too complicated to evaluate you are probably better off taking whatever you can get now and doing a simple, understandable asset allocation.

When you enter the world of VAs you enter the dark side of financial planning. You will probably have better choices if you really understood all of the options but if you don't understand the game it's time to get out.

 

[RockOn]

I hate to say it but if the choices are too complicated to evaluate you are probably better off taking whatever you can get now and doing a simple, understandable asset allocation.

When you enter the world of VAs you enter the dark side of financial planning. You will probably have better choices if you really understood all of the options but if you don't understand the game it's time to get out.

I understand the game that I'm in now which is VA M&E charges and fund fees. That's really not complicated. Venturing into the riders, now that is the dark side. I can picture a room of salaried insurance actuaries sitting around a table figuring out ways to get my money.

I always just tossed the rider proposals in the trash as they were sent to me, but a few have said I should be looking at them, especially the living benefits. I'm just trying to figure out if it's worth my time.

 

[FinanceDude]

I understand the game that I'm in now which is VA M&E charges and fund fees. That's really not complicated. Venturing into the riders, now that is the dark side. I can picture a room of salaried insurance actuaries sitting around a table figuring out ways to get my money.

I always just tossed the rider proposals in the trash as they were sent to me, but a few have said I should be looking at them, especially the living benefits. I'm just trying to figure out if it's worth my time.

Adding a living benefit rider cost about .60-.85 a year, depending on the carrier. The average cost today is about .65. Yes, that's on top of any M&E and fund ER. And if you have a policy older than 3-4 years old, you would have to buy a NEw policy to get access to the riders in all likelihood. That means a NEw surrender period, and NEW possibly higher fees inside...........

 

[RockOn]

Adding a living benefit rider cost about .60-.85 a year, depending on the carrier. The average cost today is about .65. Yes, that's on top of any M&E and fund ER. And if you have a policy older than 3-4 years old, you would have to buy a NEw policy to get access to the riders in all likelihood. That means a NEw surrender period, and NEW possibly higher fees inside...........

I realize all of that, my VA's are around 18 years old. My problem would be trying to decide if the guarantees provided with a living benefit rider exceeds the value of all the fees and surrenders etc, that could come with it. I could calculate that out if I could be sure about understanding the guarantees but some of what I think might be gauranteed might not really be there due to the complexity. I can actually get a rider at Prudential on my existing VA's, but it's rider is very complicated. As Brewer said, my model would have to be accurate to see if it was worth it. I might try reading it again, but it scared me away a few days ago.

By the way, from what I remember the rider add on fee was more like 1.65%, probably because I'm only paying a 0.6% M&E now. So I'd have about 3.25 to 4% in yearly fees including the fund fees. I might be using the guarantee with that level of yearly fees.

 

[FinanceDude]

I realize all of that, my VA's are around 18 years old. My problem would be trying to decide if the guarantees provided with a living benefit rider exceeds the value of all the fees and surrenders etc, that could come with it. I could calculate that out if I could be sure about understanding the guarantees but some of what I think might be gauranteed might not really be there due to the complexity. I can actually get a rider at Prudential on my existing VA's, but it's rider is very complicated. As Brewer said, my model would have to be accurate to see if it was worth it. I might try reading it again, but it scared me away a few days ago.

By the way, from what I remember the rider add on fee was more like 1.65%, probably because I'm only paying a 0.6% M&E now. So I'd have about 3.25 to 4% in yearly fees including the fund fees. I might be using the guarantee with that level of yearly fees.

I doubt the add-on rider fee was 1.65%, did you get phone confirmation on that? Anyway, right now you have a long-term contract that's low cost. The first thing is, DO YOU WANT to guarantee it, and why?

 

[Art G]

I understand the game that I'm in now which is VA M&E charges and fund fees. That's really not complicated. Venturing into the riders, now that is the dark side. I can picture a room of salaried insurance actuaries sitting around a table figuring out ways to get my money.

I always just tossed the rider proposals in the trash as they were sent to me, but a few have said I should be looking at them, especially the living benefits. I'm just trying to figure out if it's worth my time.

First off, the actuaries are not working on ways to get your money, like the compliance depts., they are looking for ways for you not to do business. The actuary is the guy telling you that it ain't gonna work.
Now, I just can't understand your viewpoint that you'd rather pay a small something to get nothing in return, then to pay less than 1% more to actually have something of value to you.
I don't see the VA's so complicated as say, an index annuity. Now that's a wasp nest of confusion! Or CMO's, or closed end funds, or just about any sort of derivative product.
How come no one complains about a CD paying a banker a commission?
On a side note, I'm just curious, but what type of vehicle to do you drive?

 

[RockOn]

I doubt the add-on rider fee was 1.65%, did you get phone confirmation on that? Anyway, right now you have a long-term contract that's low cost. The first thing is, DO YOU WANT to guarantee it, and why?

The 1.65% may include the 0.6% M&E I already pay, I didn't read it close enough to tell. There were other variations of riders in the plan at even higher add-ons, some were more than 2%. I should really check it out more before I comment.

As to if I want a guarantee, here's the situation. If I can make 7% or more annualized on the VA money, I'll have a great ER. That may sound pretty easy to most but I am risk adverse. If I make at least 4% annualized on that money I'll have an acceptable ER. If I lose money and don't have any return, my plan blows up. Therefore, if I can get a guarantee of around 4 or 5% which I believe the Living Benefits might do (at least based on a rough cash flow calculation,) I might be willing to pay for the rider to guarantee the "acceptable" ER as long as it doesn't cost too much. Another 2% in fees a year may be ok, if thing go really well I still might get close to 7%.

 

[Art G]

The 1.65% may include the 0.6% M&E I already pay, I didn't read it close enough to tell. There were other variations of riders in the plan at even higher add-ons, some were more than 2%. I should really check it out more before I comment.

As to if I want a guarantee, here's the situation. If I can make 7% or more annualized on the VA money, I'll have a great ER. That may sound pretty easy to most but I am risk adverse. If I make at least 4% annualized on that money I'll have an acceptable ER. If I lose money and don't have any return, my plan blows up. Therefore, if I can get a guarantee of around 4 or 5% which I believe the Living Benefits might do (at least based on a rough cash flow calculation,) I might be willing to pay for the rider to guarantee the "acceptable" ER as long as it doesn't cost too much. Another 2% in fees a year may be ok, if thing go really well I still might get close to 7%.

I just find this so intriguing. I don't know how old you are so it's hard to tell you what you can get, however, IF you could get a 7% guarantee, would you even care what your expenses were?

 

[RockOn]

First off, the actuaries are not working on ways to get your money, like the compliance depts., they are looking for ways for you not to do business. The actuary is the guy telling you that it ain't gonna work.
Now, I just can't understand your viewpoint that you'd rather pay a small something to get nothing in return, then to pay less than 1% more to actually have something of value to you.
I don't see the VA's so complicated as say, an index annuity. Now that's a wasp nest of confusion! Or CMO's, or closed end funds, or just about any sort of derivative product.
How come no one complains about a CD paying a banker a commission?
On a side note, I'm just curious, but what type of vehicle to do you drive?

On the actuaries, are you really sure they are on my side? Just kidding on that really, you may be correct that they want a win-win.

On the small something to get nothing, what do you mean? On paying the less than 1%, what am I getting that actually has value to me? I just want ot understand.

VA's are not complicated to me, the riders are. I opened my Prudential prospectus, there were 277 pages, lot's of it dealing with riders. That's not complicated?

I don't complain about commissions. I have an Acura MDX and a Honda Accord. Tell me why that matters?

 

[RockOn]

I just find this so intriguing. I don't know how old you are so it's hard to tell you what you can get, however, IF you could get a 7% guarantee, would you even care what your expenses were?

53, Not if it were a clean 7% that I could earn and walk away with!

 

[Art G]

On the actuaries, are you really sure they are on my side? Just kidding on that really, you may be correct that they want a win-win.

On the small something to get nothing, what do you mean? On paying the less than 1%, what am I getting that actually has value to me? I just want ot understand.

VA's are not complicated to me, the riders are. I opened my Prudential prospectus, there were 277 pages, lot's of it dealing with riders. That's not complicated?

I don't complain about commissions. I have an Acura MDX and a Honda Accord. Tell me why that matters?

If you currently have a VA, you are paying an insurance expense for something that is probably useless now. If it's an old policy, you're probably paying a small cost for them to insure that your heirs receive at least as much as you invested minus withdrawals. So, if you've had it a while, it's probably up a large enough percentage that you're paying an insurance cost of something you could do, just by picking up the phone and telling them to move you to cash.
However, with the new living expenses, it is possible you can insure your income for life, which based on your responses, is something you'd greatly value. Now at 53 you're not going to be getting 7% yet, but there's a chance you could in the future, AND (this is the big part), you can sleep at night knowing it won't be any less EVER than what you're currently able to get, but it could go up. Is peace of mind worth anything? 1%??
As to the 277 pages of prospectus...some useful info, but a lot of legalese. Do you read the side of a tuna fish can before eating it? The sodium will surely kill you one day! No one reads it.
Anyway, just curious about the car you drive because it seems so many here are so concerned here with expenses, but then they drive a Lexus when a Chevy will get them where they want to go just as well.
This is just my opinion, but I'm willing to pay a bit more for service and peace of mind. It may be stupid, but I'd rather buy a quality suit than to buy junk from Walmart where I'm assured of getting no service and low quality that won't last. AND, if I can reach my goal of earning what I need to earn, and like you say, "it's clean" then I don't care what my costs are, just as if I get the price on my car that I consider to be fair, then I don't resent my car salesman making his commission.
Sorry for the rant, I'm not attacking you, just trying to understand. I appreciate your honesty.

 

[2B]

I believe it has been fully established that annuities are awash with fees and are complicated so that even financial professionals can readily debate their content. Need I or anyone say more that they should be avoided.

I must admit the concept of annuities are appealing. The issue is that the originators of these products have not made them simple and competitive with the simple DIY concept of this forum.

Please, don't make me start calling people "idiots" so the moderators will terminate this thread.

 

[Art G]

To say they are complicated is possibly fair. To say then they should be avoided isn't. You want to talk about complicated, let's talk about how they make tap water drinkable, now THAT'S complicated! And yet we continue to drink.
Interesting that you'd rather get a thread terminated then to just ignore it.

 

[2B]

To say they are complicated is possibly fair. To say then they should be avoided isn't. You want to talk about complicated, let's talk about how they make tap water drinkable, now THAT'S complicated! And yet we continue to drink.
Interesting that you'd rather get a thread terminated then to just ignore it.

Rather that than be subjucted to trolls.

I have never seen one reason to subject one's personal finances to annuities unless your annual income exceeded $1MM. Even then it's up for discussion.

 

[RockOn]

Rather that than be subjucted to trolls.

I have never seen one reason to subject one's personal finances to annuities unless your annual income exceeded $1MM. Even then it's up for discussion.

2B, some of us already own them. It might have been a mistake to buy them but discussing what our options are now seems to be reasonable.

I am not defending annuitites because I agree there are a lot of problems with insurance products, but would you put hedge funds in the same catagory as annuities? The fees are much higher and they don't even tell you where your money is? There are many investment products that have high fees. Many, many, Mutual Funds have high fees in my opinion. If they charge 1.25% and the expected return is around 8% long term on a balanced portfolio, they are taking about 16% of all of the potential gains and do not even match the market gains on average. Should they be allowed to do that? If it wasn't for Vanguard there probably wouldn't be any low priced options in Mutual Funds. I am against almost all of the fees, but we have to do something with our money. Maybe the whole Financial Industry is charging way too much in fees for the value they create?

 

[73ss454]

I think most folks that put their money in hedge have more $ than sense and if they lose a few bucks so be it.

On the other hand many people who get caught up in the annuities thing have limited amounts of money and can't afford to lose what they have. This is why they went in an annuity in the first place to make the money last.

 

[RockOn]

I think most folks that put their money in hedge have more $ than sense and if they lose a few bucks so be it.

On the other hand many people who get caught up in the annuities thing have limited amounts of money and can't afford to lose what they have. This is why they went in an annuity in the first place to make the money last.

That's a fair comment. What about the high fee poor performing Mutual Funds, they are being sold to a lot of unsuspecting people are they not?

Again, I'm not defending anuitities. But I have some VA's for about 18 years, I have done ok.