Attitudes Toward Annuities Affected by How They Are Presented

[Art G]

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Originally Posted by RockOn 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]

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Originally Posted by Art G 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]

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Originally Posted by Art G 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]

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Originally Posted by RockOn 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]

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Originally Posted by 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.

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]

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Originally Posted by 2B 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]

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Originally Posted by 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.

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.

[73ss454]

Rockon, I was one of those people who were being taken by my broker for 30 years. It wasn't until about 5 years ago when I found this forum and started reading the recommended books did I wake up.

Can't worry about what's in the past just look forward and you'll be OK.

[RockOn]

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Originally Posted by 73ss454 Can't worry about what's in the past just look forward and you'll be OK.

I actually am ok. I made quite a bit of tax free money in the VA annutities, I used to trade funds based on trends and it was a commission free way to do it. Many VA's offer tons of fund choices. I might not have done as well in a taxable account. They frown on any type of trading these days. At this point I'm just looking to see if the products have changed and if there are any options/guarantees out there that make sense for me.

[73ss454]

Good for you Rockon, I've just had enough of ins. companies in my life so I'll pass. Also if I wanted an annuity I'd just ask Brewer to make one for me without the commissions. (heh)

Hey, maybe when I sell my whole life policy, well that's another story.

[RockOn]

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Originally Posted by 73ss454 Good for you Rockon, I've just had enough of ins. companies in my life so I'll pass. Also if I wanted an annuity I'd just ask Brewer to make one for me without the commissions. (heh) Hey, maybe when I sell my whole life policy, well that's another story.

I looked at Brewers thread pretty carefully. It was well done and I appreciated the effort he put into it. Not to nitpick but I think the insurance companies can offer a better overall (after fees) deal than what he presented. I think it has to do with the insurance companies ability to take a much longer term view and possibly their ability to hedge without using expensive options. I might be wrong so don't quote me...haven't gotten to the bottom of that. At least, those of us already owning annuities and locked into some of the fees might find it to be a better deal.

[brewer12345]

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Originally Posted by RockOn I looked at Brewers thread pretty carefully. It was well done and I appreciated the effort he put into it. Not to nitpick but I think the insurance companies can offer a better overall (after fees) deal than what he presented. I think it has to do with the insurance companies ability to take a much longer term view and possibly their ability to hedge without using expensive options. I might be wrong so don't quote me...haven't gotten to the bottom of that. At least, those of us already owning annuities and locked into some of the fees might find it to be a better deal.

What I wrote up was ow to replicate an equity indexed annuitym which is an extremely fee-laden species of fixed annuity. If you wanted to run the replication the way an insurer would (basically tack some options on top of a medium duration corporate bond fund), you could easily beat the snot out of the product they push, have greater liquidity and more transparency. It wasn't meant to be a replication fora VA hung with secondary guarantees. I could probably come up with a reasonable replication for the asset part, but it would be way more complicated than a retail investor would want to bother with.

[saluki9]

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Originally Posted by brewer12345 It wasn't meant to be a replication fora VA hung with secondary guarantees. I could probably come up with a reasonable replication for the asset part, but it would be way more complicated than a retail investor would want to bother with.

If you figure it out let me know. I've tried to come up with a reasonable replication (at a reasonable cost) and have not had much luck.

[saluki9]

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Originally Posted by 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.

If that makes you feel better you can keep believing it. Just don't assume that it has anything to do with the truth. Most of the money going into hedge funds and private equity comes from very well staffed pensions funds, endowments, and other institutional investors.

[brewer12345]

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Originally Posted by saluki9 If you figure it out let me know. I've tried to come up with a reasonable replication (at a reasonable cost) and have not had much luck.

Problem is that the contracts are extremely complicated, so modelling isn't that easy even to go replicate it.

[brewer12345]

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Originally Posted by saluki9 If that makes you feel better you can keep believing it. Just don't assume that it has anything to do with the truth. Most of the money going into hedge funds and private equity comes from very well staffed pensions funds, endowments, and other institutional investors.

From what I have seen, the bulk of institutions are as dumb as retail investors, getting in at the top and panicking and selling at the bottom.

[RockOn]

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Originally Posted by brewer12345 What I wrote up was ow to replicate an equity indexed annuitym which is an extremely fee-laden species of fixed annuity. If you wanted to run the replication the way an insurer would (basically tack some options on top of a medium duration corporate bond fund), you could easily beat the snot out of the product they push, have greater liquidity and more transparency. It wasn't meant to be a replication fora VA hung with secondary guarantees. I could probably come up with a reasonable replication for the asset part, but it would be way more complicated than a retail investor would want to bother with.

Thanks, I understand. I appreciate your thread on that option. I know it was not meant to show what I am looking at which is really secondary guarantees. Since I already own them and already have some of the fees locked in, it's really a different animal than what you were trying to do which was showing that there were ways to get guarantees without buying into annuities.
I said it was a nitpick.