Fixed Index Annuities

[ferco]

Does anyone have "the skinny" on fixed index annuities ? I shudder to ask my financial advisor for obvious reasons. Are their any up-sides. A financial talk sow was talking this morning about them as the best thing since the invention of sliced bread and with NO downside risk. This last statement immediately raised my scam financial planning antenna.

Any thoughts / opinions (constructive)

 

[chinaco]

Considered a dirty word around here.

Here you go:

http://www.early-retirement.org/forums/f26/fixed-indexed-annuity-53954.html
http://www.early-retirement.org/forums/f28/fia-looks-like-just-what-i-need-53618.html
http://www.early-retirement.org/forums/f28/annuity-with-a-guaranteed-8-annual-return-48973.html

Read it and run like h3ll before angry mob shows up

 

[Rich_by_the_Bay]

I shudder to ask my financial advisor for obvious reasons.

Maybe it's time to find a new financial advisor?

 

[brewer12345]

Ugh, here we go again.

These things are complex, have lots of hidden expenses, and are mostly sold by the "iffier" insurers. If you dig around the forum I have explained how to DIY with less cost, more transparency, and a whole lot more flexibility.

 

[dgoldenz]

These posts always turn out the same, so I'll just leave it alone this time. I think there's some of my posts in the threads referenced above.

 

[braumeister]

OK, I'll take a stab at it. Here's my answer:

1. Read every word of the fine print, and assure yourself that you completely understand it.

2. Follow Rich_in_Tampa's advice above.

3. Ask the seller all the questions you can think of that weren't covered by that fine print you read. Be sure your questions are answered fully.

At that point, you will either know enough to make the right decision for you, or you might have the insight to know the right additional questions to start asking. These things are complicated, they're never "one size fits all" and you have to do a lot of homework before you can determine if one is right FOR YOU.

 

[Independent]

Read Brewer's posts on how to DIY. Or use this approach:

I assume "no downside risk" means you can't lose nominal dollars. Suppose you have $10,000 to invest.

1) Buy a 10 year treasury strip, they were trading around 70 last week. U.S. Treasury Strips - Markets Data Center - WSJ.com so you put $7,000 into a bond that will be worth $10,000 10 years from now.

2) The remaining $3,000 goes into Vanguard's Index 500 fund.

3) After 10 years, you have a guaranteed $10,000 plus something. The "plus" part will be larger or smaller depending on what the Vanguard fund does, but it won't be negative.

You will have a hard time finding an indexed annuity that can compete with that simple portfolio.