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Good Enough Annuity Rate
Old 07-15-2008, 08:19 AM   #1
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Good Enough Annuity Rate

My retiring brother, illinois teacher, says he paid too much into his state retirement plan, 35K, He can take as lump, rollover to IRA, or take an annuity of $295 per month. The annuity sound too good to be true.

Should he jump on this annuity? 10% return

What question should he be asking and info does he need to be sure?

He is 60 in August and in fairly good health.
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Old 07-15-2008, 08:25 AM   #2
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What company is the annuity with? Besides that, it seems like a VERY good annuity ... about 12% of the amount per year. Throwing it out there (as I prepare for the flames), unless the life insurance company offering the annuity is a fly-by-night swindling dealership, the annuity looks hard to compete with.
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my two centimes worth
Old 07-15-2008, 08:40 AM   #3
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my two centimes worth

Quote:
Originally Posted by cashbalancetrouble View Post
My retiring brother, illinois teacher, says he paid too much into his state retirement plan, 35K, He can take as lump, rollover to IRA, or take an annuity of $295 per month. The annuity sound too good to be true.

Should he jump on this annuity? 10% return

What question should he be asking and info does he need to be sure?

He is 60 in August and in fairly good health.
If that is from TIAA, that is a very good deal.
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Old 07-15-2008, 08:51 AM   #4
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If that is from TIAA, that is a very good deal.
Got to agree with that if the facts are true. Is the $295 for life, or a period certain payout, or both? It would be nice to know..........
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Old 07-15-2008, 09:01 AM   #5
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Annuity companies never do anyone a favor. They won't make any money with lifetime payments for the amount stated. Something smells funny. Read the fine print.
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Old 07-15-2008, 09:54 AM   #6
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I'd jump on it.
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Old 07-15-2008, 10:08 AM   #7
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I guess someone should ask the important questions: what sort of annuity is it? Does it pay for life or for a fixed term?

If its a VA or equity based annuity, then I can see how the original payment might be quoted on the basis given, yet not do quite as well on an ongoing basis.
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Old 07-15-2008, 10:12 AM   #8
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I guess someone should ask the important questions: what sort of annuity is it? Does it pay for life or for a fixed term?

If its a VA or equity based annuity, then I can see how the original payment might be quoted on the basis given, yet not do quite as well on an ongoing basis.
I'll bet it's a 10 year period certain, meaning the guy involved will get his principal back, and the insurer keeps the spread. Maybe a 12-year period certain, but that's about it...........
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Old 07-15-2008, 10:15 AM   #9
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Thats what I was thinking.

On the other hand, an equity index to the s&p500, should the s&p recover, could provide a nice ride at least for a while...
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Old 07-15-2008, 10:19 AM   #10
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Originally Posted by cashbalancetrouble View Post
My retiring brother, illinois teacher, says he paid too much into his state retirement plan, 35K, He can take as lump, rollover to IRA, or take an annuity of $295 per month. The annuity sound too good to be true.

Should he jump on this annuity? 10% return

What question should he be asking and info does he need to be sure?

He is 60 in August and in fairly good health.
Looks like a pension from The IL TRS, which includes a 3% yearly COLA.

If so, I'd compare it to COLA's immediate annuities from Principal Life and Vanguard.

- Alec
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Old 07-15-2008, 10:20 AM   #11
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Thats what I was thinking.

On the other hand, an equity index to the s&p500, should the s&p recover, could provide a nice ride at least for a while...
IT ALL depends on how the "spread" is targeted............one year point-to-point would be ugly these days..........

I agree if I would have been smart enough to buy an EIA on October 9, 2002 with all my taxable money, I could sell my advice in a newsletter for $1000 a year.............
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Old 07-15-2008, 10:23 AM   #12
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Unlike (most) others responding to you, I actually have an annuity (SPIA), purchased last year upon my retirement at age 59.

Some have some responded with good questions. I'll let you have "my list" to consider:

- Is he married? Does the annuity income continue if he dies the day after he retires? (For example, my SPIA has guaranteed payments for a 28-year term, at 100% to me, or 100% to my wife if I pass within that period. If we both pass before the 28-year period, the remaining payments are paid to our estate, in either monthly or lump sum). However, if either/both live beyond the 28 year period, the payments continue at 100%.

- There is a good chance that if he is married (and the annuity is not term-specific) that his DW would collect at 50%, which is normal for a "pension type" annuity. Is this possible "reduction in income" in his retirement income projections?

- Does he want to leave a "legacy"? That is, if he died tomorrow (and the payments were not continued after his death) would the lump sum need/want to go to a "future generation"? In our case, our joint remainder estate is going to charity, so "saving" the lump sum was of minor concern to us.

- I'll assume that the annuity is not inflation adjusted. If it represents a minor part of his "entire retirement portfolio value" (as ours does) it may not be a point to consider, but if it is, he may be better off investing the lump sum into a good mix of funds (regardless of the current "flux" in the marketplace.)

Anyway, that's my input.

- Ron
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Old 07-15-2008, 10:24 AM   #13
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Looks like a pension from The IL TRS, which includes a 3% yearly COLA.

If so, I'd compare it to COLA's immediate annuities from Principal Life and Vanguard.

- Alec
I didn't see any period certain info or length of payment info. If it's his life only, not that good of a deal...........
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Old 07-15-2008, 10:29 AM   #14
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1. I find it so funny that all the self proclaimed annuity experts don't even understand that once annuitized a VA, EIA, and fixed annuity are all the same.

2. That isn't an unusual payout from the IL TRS.
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Old 07-15-2008, 10:31 AM   #15
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My employer's plan has a lump sum option. For an early retiree, the monthly benefit is clearly better.

What happens is that the regular monthly benefit for retirement at 60 has an "early retirement subsidy". That is, it's not actuarially equivalent to the benefit at 65. Then, when they calculate the lump sum, they use the age 65 benefit, not the age 60 benefit.

So the numbers (useing typical interest and longevity assumptions) clearly favor the monthly benefit.
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Old 07-15-2008, 10:31 AM   #16
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I didn't see any period certain info or length of payment info. If it's his life only, not that good of a deal...........
Immediate Annuities - Instant Annuity Quote Calculator. is quoting $48,440 for the same life only benefit.

Looks like a good deal to me.
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Old 07-15-2008, 10:39 AM   #17
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Immediate Annuities - Instant Annuity Quote Calculator. is quoting $48,440 for the same life only benefit.

Looks like a good deal to me.
Jump on it...............
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Old 07-15-2008, 10:39 AM   #18
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I guess we need a thread on "annuitization options"...........
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Old 07-15-2008, 10:45 AM   #19
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I guess we need a thread on "annuitization options"...........
I'd "participate", but I'm tired of getting beat up ...

- Ron
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Old 07-15-2008, 10:50 AM   #20
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That sounds terrible Ron. Why dont you point out some of the threads where you were beaten up and we'll make sure to correct the problem so that it doesnt happen again?
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