Banks Peddling Annuities

[Free To Canoe]

Let's not get too overexcited here. The dominant bank-sold annuity is/was a CD-type fixed annuity. This looks like a long term CD backed by an insurer, with a fixed crediting rate just like a CD. There are times when these products can be more attractive than a CD. Where things get iffy is when banks sell EIAs or VAs.

Thanks again gang. I just got back from Mom's house. She brought up the "IRA" and showed me the year end statement. It is labeled "Traditional IRA". It is a few CDs totaling about $30k. The are shown as 4 year CDs and are paying 5.1%. Last year they were all standard CDs and not in an IRA.

I would like to learn more about the stiuation without sticking my nose in, so I will call the bank to learn about what is availble in general terms for an 85 year old seeking a higher interest rate.

 

[Brat]

Humm, is she making MRDs from thes "Traditional IRA" purchased after she stopped employment?

I think there is more to learn here...

 

[Free To Canoe]

Thanks again gang. I just got back from Mom's house. She brought up the "IRA" and showed me the year end statement. It is labeled "Traditional IRA". It is a few CDs totaling about $30k. The are shown as 4 year CDs and are paying 5.1%. Last year they were all standard CDs and not in an IRA.

I would like to learn more about the stiuation without sticking my nose in, so I will call the bank to learn about what is availble in general terms for an 85 year old seeking a higher interest rate.

Checked with the bank's investment person over the phone as to what vehicles they can offer for an 85 year old wanting to get more return on their money. His suggestion was a bond mutual fund or an annuity. He was up front with the fact that his annuity was paying 1.5% and he did not recommend it.

The whole thing is bizarre. This is what I think I know. You can't start an IRA if you are over 70 1/2. She has never owned an IRA and has not had any earned income in recent decades.
The 1099-R has the IRA box checked. Also, she showed me the year end paperwork that states "Traditional IRA" (see above). Naturally she does not remember any of the details of what happened.

If it is a mistake, it is a good one. I will leave it alone for now. The only way to know more is to go with her to the bank with the account info and ask. She does not want me handing her finances but then asks me if everything is OK.

If anybody has insight as to how she did so well with the interest rate and why the money is in an IRA format, please post.

 

[rescueme]

If anybody has insight as to how she did so well with the interest rate and why the money is in an IRA format, please post.

I'll only give you my thoughts, based upon the SPIA (Single Preimum Income Annuity) that I/we purchased at the time of my retirement, at age 59.

While the "return rate" (based upon an actuall IRR worksheet) shows just under 5%, that is a misnomer, since the monthly payments contain not only the "gains", but also a return of the preimum I paid.

If I was older, then the rate would be higher. Why? Simply that an annuity (e.g. a "life annuity") is calculated to be paying out less years, and the insurance company can return more of "your" money at that time.

Why is it in an "IRA format" as you say? Well, from my/DW's perspective, our joint SPIA was funded with "qualified" (e.g. IRA) funds. These funds came from a 401(k) account after I qualified, and are pre-tax in nature. That means that I do owe current taxes on the monthly payments I receive. OTOH, the "gross amount" of the preimum I paid for the SPIA is removed from consideration from RMD's at age 70.5, since the policy is considerd to be paid over my/DW's joint lifetime.

I don't know if these points I commented on pertain to your specific situation, but I just wanted to point them out - from a person(s) that actually do have an annuity (or more specifically, an SPIA).

 

[Rustic23]

Clif,
just for clarification, what age 'aging parents' are you talking about? As I get older, I hear a lot about 'the elderly' or our 'aging population' and things we are suppose to be susceptible to or thing that we seem to be out right stupid about. I've already figured out I am not suppose to be on the internet, much less be computer literate enough to give advice to the neighbors. My point is, that conversation with your parents may or may not be necessary. I'm still having similar conversations with my kids, so they won't do something financially stupid.

 

[FinanceDude]

Thanks again gang. I just got back from Mom's house. She brought up the "IRA" and showed me the year end statement. It is labeled "Traditional IRA". It is a few CDs totaling about $30k. The are shown as 4 year CDs and are paying 5.1%. Last year they were all standard CDs and not in an IRA.

I would like to learn more about the stiuation without sticking my nose in, so I will call the bank to learn about what is availble in general terms for an 85 year old seeking a higher interest rate.

Sounds weird........do you have statements from end of 2009? What do they say?

 

[clifp]

Clif,
just for clarification, what age 'aging parents' are you talking about? As I get older, I hear a lot about 'the elderly' or our 'aging population' and things we are suppose to be susceptible to or thing that we seem to be out right stupid about. I've already figured out I am not suppose to be on the internet, much less be computer literate enough to give advice to the neighbors. My point is, that conversation with your parents may or may not be necessary. I'm still having similar conversations with my kids, so they won't do something financially stupid.

I guess my answer is it depends on the condition of your parents. A large percentage of people over 80 have some signs of senility. You couple that with poor hearing and bad vision (My mom has macular (sp) degeneration and wears hearing aids), confusing financial products like annuities, and slick salesman and you have a recipe for seniors to think they are buying X but ending up with something much worse.

For instance the Salvation Army offered her a charitable remainder annuity, she understood that at the end of her life unlike a CD all the money went to the Salvation Army rather than her kids. I told her I was fine with her doing this, but it turns out what appealed to her was the 7% return she'd get for the annuity. Once I explained that much of the 7% was the return of her own money, and not the same as 7% interest rate on a CD, she didn't really want the product. I talked to the man at the Salvation Army and I am convinced that he was not being deceptive it is just that she heard the 7% and thought interest rate, she didn't hear/understand his explanation of the annuity aspect of the product. This is for upstanding charitable organization and a man who doubt is paid on commission.

As for the internet I got my 95 year old grandfather on the internet and this was back in the around 1997 when most people weren't on it. Sadly his widow, who was suffering from dementia that was diagnosed too late, ended up getting taken advantage by a trust officer working for a church. This trust officer manage to undo all the careful estate planning my grandfather put in place, and ripped of the family for between $500K and $1 million dollars.

Just because you giving sound financial advice to your kids now doesn't mean that the situation won't change in 10 or 20 years. Aging happens.

 

[Free To Canoe]

Sounds weird........do you have statements from end of 2009? What do they say?

See the above for 2010 statement.
The 2009 statement lists the CDs. Tax statement was a 1099-Int. Never a mention of an IRA then or in the past.

 

[Free To Canoe]

I guess my answer is it depends on the condition of your parents. A large percentage of people over 80 have some signs of senility. You couple that with poor hearing and bad vision (My mom has macular (sp) degeneration and wears hearing aids), confusing financial products like annuities, and slick salesman and you have a recipe for seniors to think they are buying X but ending up with something much worse.

For instance the Salvation Army offered her a charitable remainder annuity, she understood that at the end of her life unlike a CD all the money went to the Salvation Army rather than her kids. I told her I was fine with her doing this, but it turns out what appealed to her was the 7% return she'd get for the annuity. Once I explained that much of the 7% was the return of her own money, and not the same as 7% interest rate on a CD, she didn't really want the product. I talked to the man at the Salvation Army and I am convinced that he was not being deceptive it is just that she heard the 7% and thought interest rate, she didn't hear/understand his explanation of the annuity aspect of the product. This is for upstanding charitable organization and a man who doubt is paid on commission.

Interesting. I am betting this is how it is with my mother.

As for the internet I got my 95 year old grandfather on the internet and this was back in the around 1997 when most people weren't on it. Sadly his widow, who was suffering from dementia that was diagnosed too late, ended up getting taken advantage by a trust officer working for a church. This trust officer manage to undo all the careful estate planning my grandfather put in place, and ripped of the family for between $500K and $1 million dollars.

Just because you giving sound financial advice to your kids now doesn't mean that the situation won't change in 10 or 20 years. Aging happens.

Wow. Incredible. Sorry to hear that but it is good that I do.
It seems that no matter how bulletproof the plan, there is somebody that can and will undo it. Stories like this help to shape my belief that you should do and give what you want while you are still alive to see it through.

 

[Free To Canoe]

Checked with the bank's investment person over the phone as to what vehicles they can offer for an 85 year old wanting to get more return on their money. His suggestion was a bond mutual fund or an annuity. He was up front with the fact that his annuity was paying 1.5% and he did not recommend it.

The whole thing is bizarre. This is what I think I know. You can't start an IRA if you are over 70 1/2. She has never owned an IRA and has not had any earned income in recent decades.
The 1099-R has the IRA box checked. Also, she showed me the year end paperwork that states "Traditional IRA" (see above). Naturally she does not remember any of the details of what happened.

If it is a mistake, it is a good one. I will leave it alone for now. The only way to know more is to go with her to the bank with the account info and ask. She does not want me handing her finances but then asks me if everything is OK.

If anybody has insight as to how she did so well with the interest rate and why the money is in an IRA format, please post.

Funny what a few pieces of misinformation can lead you to. Found out today that Mom has a traditional IRA and is taking RMDs from it. She renewed the CDs long term in 2006. Getting 5.1% interest. The RMD lead her to believe that she is getting 7%. How she "got" an IRA? Perhaps I was mistaken, perhaps someone else is. Oh well. Everyone is happy.

 

[TN_INVEST]

Where have you been?

Lots of banks have been "pushing" annuities for years/decades.

In reality, a lot of CD customers can benefit from them, especially the ones that continually roll them over (heck, a good deal of those folks should have bought bonds or stocks with that money).

As to the issue about insurance companies and banks: Lots of insurance companies have created their own banks. One word: CONVERGENCE

http://www.statefarm.com/bank/bank.asp
http://www.statefarm.com/bank/bank.asp

http://www.metlifebank.com/
Deposit products and services provided by MetLife Bank N.A., Member FDIC

http://www.allstatebank.com/

http://www.nationwide.com/online-banking.jsp
Nationwide Bank, Member FDIC

https://www.usaa.com/inet/ent_logon/Logon
USAA means United Services Automobile Association and its insurance, banking, investment and other companies. Banks Member FDIC.


And investment companies are doing the same

http://www.schwabbank.com/

http://www.tdbank.com/

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As to the 5.1% fixed annuity. That rate isn't ridiculous if she "bought/opened" the account a few years ago (haven't seen rates that high lately, though).

 

[Brett_Cameron]

I was logged into USAA the other day and clicked on the link for annuity information, looked around, sniffed the air and left. Two days later a person from USAA called me and stated I had looked at annuities on the website and offered to "help" me. I told him I would call him back if and when annuities became a potential solution to my retirement income needs.

This was the first aggressive sales pitch I have ever had other than occasional queries from the representatives while I was on the phone with them for other business. Annuities must be lucrative for insurance companies.

 

[rescueme]

Annuities must be lucrative for insurance companies.

So is life insurance.

If you have the need for either (life or income policies) than an insurance company can sell you a policy that will fit your needs.

Do they make a profit? Of course; if not, they would not be in the business.

 

[Brett_Cameron]

I agree that insurance companies fill several needs and the world is better with them than without them!