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Old 12-13-2010, 04:26 PM   #41
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They haven't really been around that long to make that kind of comparison. We have a few from ~2006 that had 10-12% caps (depending on number of surrender years) that have done well, hit the cap a couple times, and never lost a dime. Again, you can't compare them with alternate portfolios because there is risk of principal loss, while there is not with FIA's no matter how you want to paint them. The only way to lose money with an FIA is early surrender or if the charges for optional riders exceed the overall gain. Think about it as a fixed annuity with a varying return, not as an investment.
The Wharton study looks at FIA starting in 1997. Any of the annuity before 2000 would meet TJay requirements, I guess you weren't selling back then. Which leads to the question why do you think these are (or more accurately were) good products when you don't have any real life experience with them funding peoples retirement?

There is actually a chance you could lose money if your insurance company goes bankrupt. I'd contend that the more aggressive their product the higher this chance. I suppose in theory there is a chance that a diversified portfolio would lose money over a 10-11 year period. In practice according to Firecalc 1 million dollar diversified portfolio (<50% equities) always ended up with more than $1 million, eleven years later for all 129 cycles. Given that most EIA have long surrender periods the chance of losing money for either over a 10+ years is pretty close to zero. Of course this is nominal dollars in real dollars, all bets are off.
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Old 12-13-2010, 04:35 PM   #42
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The Wharton study looks at FIA starting in 1997. Any of the annuity before 2000 would meet TJay requirements, I guess you weren't selling back then. Which leads to the question why do you think these are (or more accurately were) good products when you don't have any real life experience with them funding peoples retirement?

There is actually a chance you could lose money if your insurance company goes bankrupt. I'd contend that the more aggressive their product the higher this chance. I suppose in theory there is a chance that a diversified portfolio would lose money over a 10-11 year period. In practice according to Firecalc 1 million dollar diversified portfolio (<50% equities) always ended up with more than $1 million, eleven years later for all 129 cycles. Given that most EIA have long surrender periods the chance of losing money for either over a 10+ years is pretty close to zero. Of course this is nominal dollars in real dollars, all bets are off.
As you can see in the study, sales of FIA's did not "explode" until ~2004-2005. Again, the index returns have nothing to do with the guaranteed income payout. Whether the accumulation part of the policy earns 0% or hits the cap, that has no impact at all on the guaranteed side for income distribution. I stated earlier that caps have gone down substantially over the past couple years - however, if the sole purpose of the annuity is to provide a guaranteed income at a specific age, that's a different story. The caps and returns should have no bearing other than leaving the flexibility of "walking away" with the lump sum at the end to roll over or use for a SPIA instead if interest rates rise. Like I said, you have to give up what you don't care about to get what you want, it's part of the trade-off.

An FIA should not be used solely to fund a retirement, it should be used as part of an overall strategy. If you sent in an application for an FIA with 90% of someone's retirement going to the FIA, they would reject it as an unsuitable sale.

You can run all the FireCALC and theoretical equations you want. You can't, however, GUARANTEE that a diversified portfolio won't lose money, and you can't GUARANTEE a specific stream of income. Of course you give up some of your potential return on an FIA, there's no such thing as a free lunch. The question is whether the person feels it is more important to have a minimum guarantee or to try and maximize returns with the potential risk of loss. Doesn't have to be more complicated than that, even if the products themselves can sometimes be hard to understand.
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Old 12-13-2010, 04:57 PM   #43
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Dgoldenz, that was excellent description of the income side of the FIA. If a purchase any that would be the reason. I want a guaranteed income stream in our later years of retirement so that the other 2/3 of our nest egg can invested in the markets, without having to worry about paying the bills during the, hopefully occasional, market dips.

I think I’m done here. It’s been fun and enlightening. My thanks to dgoldenz, chinco, nords, brewer12345 and also, the “other folks”. I will continue to do my due diligence before signing anything. Hopefully I can report back to you from the golf course on my 96th birthday that all went well with the FIA’s and that I finally shot my age.

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Old 12-13-2010, 05:10 PM   #44
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The caps and returns should have no bearing other than leaving the flexibility of "walking away" with the lump sum at the end to roll over or use for a SPIA instead if interest rates rise. Like I said, you have to give up what you don't care about to get what you want, it's part of the trade-off.


You can run all the FireCALC and theoretical equations you want. You can't, however, GUARANTEE that a diversified portfolio won't lose money, and you can't GUARANTEE a specific stream of income. Of course you give up some of your potential return on an FIA, there's no such thing as a free lunch. The question is whether the person feels it is more important to have a minimum guarantee or to try and maximize returns with the potential risk of loss. Doesn't have to be more complicated than that, even if the products themselves can sometimes be hard to understand.
As you said TNSTAFL, you presumably are paying something in terms of 'guarantee' income for all of the complications in terms of participation rates, caps etc. What I'd like to see and I think Tjay should ask for is to see how much would my account been credited for if I bought this product in 69, 79. I understand it doesn't impact the minimum payment but are the ever cases where the minimum payment isn't also the maximum payment.? I.e. does the equity index part of the product actually benefit customer.


You can put guarantee in big bold letter and use it 1/2 dozen in a paragraph. But the reality is NOTHING is guaranteed in the financial world NOTHING (not even taxes). Insurance companies go broke (even big ones like *cough* AIG *cough*) and cause their clients to lose money. I can point to 140 years of FIRECalc data, and you can point to tens of millions of insurance claims being paid, but neither of us know what the future will bring.
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Old 12-13-2010, 05:14 PM   #45
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As you said TNSTAFL, you presumably are paying something in terms of 'guarantee' income for all of the complications in terms of participation rates, caps etc. What I'd like to see and I think Tjay should ask for is to see how much would my account been credited for if I bought this product in 69, 79. I understand it doesn't impact the minimum payment but are the ever cases where the minimum payment isn't also the maximum payment.? I.e. does the equity index part of the product actually benefit customer.

You can put guarantee in big bold letter and use it 1/2 dozen in a paragraph. But the reality is NOTHING is guaranteed in the financial world NOTHING (not even taxes). Insurance companies go broke (even big ones like *cough* AIG *cough*) and cause their clients to lose money. I can point to 140 years of FIRECalc data, and you can point to tens of millions of insurance claims being paid, but neither of us know what the future will bring.
Sounds like we're sort of in agreement here. I am not saying that a diversified portfolio will not do better over the long term, only that it's not a guarantee, which is what an annuity buyer is looking for. With the income rider products, aside from Allianz, the guaranteed income payout is fixed, it does not change with policy performance on the accumulation side. What you are paying for the guaranteed income is a percentage of the accumulation value each year (usually something like 50 basis points) and in most cases, lower caps than a product which does not have an income guarantee. Depends how they're structured.
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Old 12-13-2010, 05:54 PM   #46
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More information.

FINRA - Investor Alert - Equity-Indexed Annuities&mdash;A Complex Choice

This next one is an appendix in a 2008 draft of the ANNUITY DISCLOSURE MODEL REGULATION from the NAIC.

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APPENDIX A -- BUYER’S GUIDE TO FIXED INDEXED ANNUITIES
http://www.naic.org/documents/commit..._annuities.pdf
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Old 12-13-2010, 07:29 PM   #47
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You can't, however, GUARANTEE that a diversified portfolio won't lose money, and you can't GUARANTEE a specific stream of income.
The question is whether the person feels it is more important to have a minimum guarantee or to try and maximize returns with the potential risk of loss.
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I want a guaranteed income stream in our later years of retirement so that the other 2/3 of our nest egg can invested in the markets, without having to worry about paying the bills during the, hopefully occasional, market dips.
As that famous statesman once protested, I guess it depends on what your definition of the word "guarantee" is...

But personally I think a guarantee is much more credible when it's SPELLED IN ALL CAPITAL LETTERS so that even I can understand what it is.
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Old 12-13-2010, 07:55 PM   #48
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As that famous statesman once protested, I guess it depends on what your definition of the word "guarantee" is...

But personally I think a guarantee is much more credible when it's SPELLED IN ALL CAPITAL LETTERS so that even I can understand what it is.
HITTING THE CAPS LOCK KEY IS EASIER THAN HIGHLIGHTING A WORD AND PUTTING IT IN BOLD LETTERS.

I consider a written contract a guarantee, but as has been stated numerous times, can have a problem if the claims-paying ability of the insurer is compromised.
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Old 12-13-2010, 08:04 PM   #49
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HITTING THE CAPS LOCK KEY IS EASIER THAN HIGHLIGHTING A WORD AND PUTTING IT IN BOLD LETTERS.
Perhaps that's true. However..

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Another rule is to avoid typing in all caps or grossly enlarging script for emphasis, which is considered to be the equivalent of shouting or yelling.
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Old 12-13-2010, 08:06 PM   #50
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I'M NOT YELLING. I PROMISE.

Alright, I think this thread has about had it and the OP seems to have got the info he was looking for.
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Old 12-13-2010, 08:45 PM   #51
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I just wanted to yell this out "DON'T BE STUPID AND BUY THIS CRAP'

If an insurance company is involved it's not to your advantage. Any part of this statement that you don't understand? I can't yell much louder.
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Old 12-13-2010, 10:47 PM   #52
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Suggestion TJay: I'm positive the salesman showed you a progression of what your account values will be. If he hasn't already done so, ask him...to run the numbers for you during both good and bad yearly market conditions...such as 10% up, 2% up , 5% down and 10% down or what the heck...even 50% down. Salesmen love to show you the good stuff. Make him show you the bad stuff.

Next: Ask him to run the numbers with the same market conditions when you start to take your yearly pay outs.

You may be able to see discrepancies or things that might give you pause. I did . I was investigating an annuity with a guaranteed death benefit. Of course I paid 1/2% or more for this death benefit every year. When the numbers were run, I noticed the quaranteed death benefit I supposedly paid for....went to zero under negative market conditions after I started pay outs. Surprise!!! I know you said you didn't care about the death benefit...but running the numbers under different scenarios might ferret out something else you don't know about. I didn't buy this annuity. Ive yet to find one I will buy. An Immediate income annuity is about the only one I might consider.

P.S. Ask for full disclosure. I also noticed when analyzing this annuity..that they charge you every time you take a pay out. The brokerage house I dealt with probably had to disclose that. Your salesman might not have to.

And of course they can give you 8% a year. They are logging that on one side as they are taking their fees (what 3% to 5% depending on the riders) out of your real cash on the other.

Good luck...and put this salesman thru his paces! Read the fine print - there might also be something about when they can increase their fees in there.
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Old 12-14-2010, 07:12 AM   #53
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I'm amazed and impressed with the patience of forum members for ledge walkers. I would have yelled "JUMP" a long time ago.
When you encounter someone who has loaded a couple of slugs into the shotgun, crammed the barrel into their mouth and is frantically kicking off their shoes so they can pull the trigger with their toes even after being told what the outcome will be, the best choice is usually to don a raincoat and watch from a safe distance.
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Old 12-14-2010, 08:51 AM   #54
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brewer12345, excellent advice about starting fresh when the legal details arrive. And you are right - unless I read something in the prospectus or contract that "punches me in the face" (I really like that valuable insight from an unlikely source), I'll probably do it.
Another piece of advice, from someone who's livelihood depended, in part, on his ability to correctly read prospectuses. You have to read every word. Every, single word. And every single word has to be interpreted literally, and from the prospective of the author. If the wording seems like it allows a variety of interpretations, assume the intended interpretation is the one most favorable to the issuer.

A couple of specifics jump to mind: Be mindful of defined terms, and refer to the definition religiously. The definition in the prospectus of a common word, like interest, or guarantee, may be significantly different from what you'd normally assume. Watch for clauses that negate or limit previous assertions. As in "Issuer guarantees a 4% annual return floor . . . notwithstanding anything else in this clause, issuer will pay no more than the monthly return on the S&P 500 Index less 400 basis points."

Good luck
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Old 12-14-2010, 09:01 AM   #55
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Good post Gone4Good, now can someone tell me why they would want to put their money into something that is designed to trick them?
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Old 12-14-2010, 09:03 AM   #56
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Good post Gone4Good, now can someone tell me why they would want to put their money into something that is designed to trick them?
<insert PT Barnum quote>
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Old 12-14-2010, 09:24 AM   #57
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Are we focusing on the delivery method (sale by agent) or what the insurer is doing in inventing these products? Because, in my experience, insurance companies are like the house in Vegas, they set products up for THEM to win. Insurance companies don't WANT to pay, they HAVE to pay.........
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Old 12-14-2010, 09:39 AM   #58
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Are we focusing on the delivery method (sale by agent) or what the insurer is doing in inventing these products? Because, in my experience, insurance companies are like the house in Vegas, they set products up for THEM to win. Insurance companies don't WANT to pay, they HAVE to pay.........
So, I guess TJAY can always rely on the agent to explain everything to him.
I'm sure the agent wouldn't want TJAY to be tricked by the insurance company.
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Old 12-14-2010, 10:11 AM   #59
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So, I guess TJAY can always rely on the agent to explain everything to him.
I'm sure the agent wouldn't want TJAY to be tricked by the insurance company.
Hey, this boat can't sink!
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Old 12-14-2010, 02:27 PM   #60
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So, I guess TJAY can always rely on the agent to explain everything to him.
I'm sure the agent wouldn't want TJAY to be tricked by the insurance company.
I am sure you did a good job of that while "in the box"...........
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