Interesting comments on annuities

[obgyn65]

Thank you for the advice, Brewer. Yes, I have chosen one of the three top companies in that market, already discussed in other threads.

Obgyn, I hope you chose the insurer carefully. You will be exposed to them for a longtime.

 

[obgyn65]

I asked for quotes from 3 companies re: deferred annuities. None of them was COLA'd.

Is it possible to find COLA'd deferred payout annuities at this point?

 

[obgyn65]

True if you are considering immediate annuities. However, I am not sure if this assumption is still true for deferred annuities. As mentioned above, I got 11.88% payout in 15 years' time. My net withdrawal from my nest eggs (i.e after tax) has gone from about $92K a year to $96 until age 95. If I die before age 62, I lose the cost of the annuity (about 1% of my net worth). It's a risk I am willing to take...

Apart from interest rates, annuities get less expensive the longer one waits simply due to fewer years to fund.

 

[sheehs1]

It is a deferred annuity, not an immediate annuity. The rate is 11.88% payout at age 62. In makes sense in my case as I have worked only 10 years in the USA (have not gotten my 40 quarters yet). No heir. Small pension. There is no extra payout.

Yes...I got that it was deferred. When I was looking at variable deferred back in 2009 or so...I was not quoted these payout percentages. In terms of yearly payout 5% was what I was quoted from a couple of well known firms.
ummm. Interesting obgyn65. I believe you. Just trying to determine what I missed.
Is there a difference between variable deferred and deferred.? Meaning is return of capital part of your annuity pay out?

 

[obgyn65]

I apologize, sheehs1. I do not know the answer to this question as I only have the simple deferred format. I did not even know that variable deferred existed.

Is there a difference between variable deferred and deferred.? Meaning is return of capital part of your annuity pay out?

 

[Alan]

..... I have worked only 10 years in the USA (have not gotten my 40 quarters yet).....

You must only have a few weeks to go to get those 40 quarters, then you can look forward to a COLA'ed annuity from Uncle Sam

 

[obgyn65]

Yes. A couple of months to wait only... Can't wait.

You must only have a few weeks to go to get those 40 quarters, then you can look forward to a COLA'ed annuity from Uncle Sam

 

[ERhoosier]

You must only have a few weeks to go to get those 40 quarters, then you can look forward to a COLA'ed annuity from Uncle Sam

I'm MUCH less confident that "Uncle Sam COLA'ed annuity" will continue indefinitely for those of even median US net worth. SS is already mostly taxed as ordinary income, and I foresee institution of formal means testing as a way to decrease the unsustainable $$$ outflows from the program. DW & I are mid-50's & have instructed our financial advisor NOT to include SS payments in our retirement financial plan. Of course, I hope I'm wrong- in which case we'll have more $$ for luxuries

 

[pb4uski]

No idea. Theoretically, it shouldn't be terribly hard for the insurers to design such a product.

Finding sufficient variable rate assets that provide returns sufficient to fund the benefits and expenses and provide an adequate return on capital is the problem.

 

[brewer12345]

Finding sufficient variable rate assets that provide returns sufficient to fund the benefits and expenses and provide an adequate return on capital is the problem.

Lots of ways to skin that cat. One major way is to raise the price of the annuity.

 

[pb4uski]

If it is so easy, how do you explain that there are there virtually no inflation adjusted deferred annuities and very few inflation adjusted immediate annuities offered by insurers?

If it was easy and sufficiently profitable then they would be writing them - they know it would be popular.

 

[brewer12345]

If it is so easy, how do you explain that there are there virtually no inflation adjusted deferred annuities and very few inflation adjusted immediate annuities offered by insurers?

If it was easy and sufficiently profitable then they would be writing them - they know it would be popular.

Most likely because they are expensive and therefore a tough sell. Lazy insurance agents like stuff that is easy to sell to their generally unsophisticated customers and the necessarily small payout that would result from an indexed SPIA is a tough sell to most of the rubes.

 

[pb4uski]

Most likely because they are expensive and therefore a tough sell. Lazy insurance agents like stuff that is easy to sell to their generally unsophisticated customers and the necessarily small payout that would result from an indexed SPIA is a tough sell to most of the rubes.

You're right brewer. Those simple and inexpensive VAs and EIAs are a much easier sell.

 

[Alan]

I'm MUCH less confident that "Uncle Sam COLA'ed annuity" will continue indefinitely for those of even median US net worth. SS is already mostly taxed as ordinary income, and I foresee institution of formal means testing as a way to decrease the unsustainable $$$ outflows from the program. DW & I are mid-50's & have instructed our financial advisor NOT to include SS payments in our retirement financial plan. Of course, I hope I'm wrong- in which case we'll have more $$ for luxuries

DW & I ER'ed in our mid-50's 3 years ago. We need folks like you to keep on working to build a bigger nest egg for your retirement. (and keep paying FICA).

It all depends on how you gamble - stocks, bonds, real estate, private pensions, Uncle Sam ....

Our plan is for 50% of our estimated SS benefits.

 

[Khufu]

If it is so easy, how do you explain that there are there virtually no inflation adjusted deferred annuities and very few inflation adjusted immediate annuities offered by insurers?

If it was easy and sufficiently profitable then they would be writing them - they know it would be popular.

No demand. People don't like annuities, irrationally. Then, among the remaining pool of prospects not many are astute enough to focus on inflation risk.

 

[sheehs1]

I apologize, sheehs1. I do not know the answer to this question as I only have the simple deferred format. I did not even know that variable deferred existed.

No problem obgyn65. I was just curious! That happens sometimes.

 

[brewer12345]

You're right brewer. Those simple and inexpensive VAs and EIAs are a much easier sell.

Remember how all of these products are generally sold. Its all about the sizzle, not the steak:

- VA: you get to invest in the equity market and you can't lose because the insurer will offer you a guarantee. Its great! (Ignore the expense ratio and 300 page prospectus)
- EIA: equity upside without the downside. Woohoo! (Ignore the fact that the insurer and the agent take much of the underlying economics from you)
- SPIA: Look at the yield! (never mind that a lot of it is return of principal)

In contrast, the inflation indexed SPIA protects you from an inflationary spiral that might or might not happen over the course of 20 years and requires you to accept half the yield you could get today from a non-indexed SPIA. Much tougher sell.

 

[KRobby]

Remember how all of these products are generally sold. Its all about the sizzle, not the steak

Obviously you haven't sold many, amirite?

 

[Independent]

Is it possible to find COLA'd deferred payout annuities at this point?

I'd try MetLife. I know they issue "pure" deferred annuities (no cash value). At one time they had COLA'd products.

The problem today is that the ins company has trouble finding a place to put the money. Up to a few years ago, they could buy TIPS, which matched the COLA provision. They might add derivatives for a little more yield. Or, buy regular bonds and some sort of TIPS/Fixed swap. Whichever route they take, they should be actively managing the asset/liability match.

But these days yields on TIPS are so low that an annuity based on them has an extremely low payout (the premium is high).

I can remember pitching a COLA'd SPIA to the financial megacorp I was working for in 1997, because I had seen that the Treasury was issuing inflation protected bonds. That company eventually was one of the first to issue the product. But, checking their website today, I don't see it. I'd guess that low sales have caused them to at least suspend, maybe drop, the product.

 

[pb4uski]

.....I can remember pitching a COLA'd SPIA to the financial megacorp I was working for in 1997, because I had seen that the Treasury was issuing inflation protected bonds. That company eventually was one of the first to issue the product. But, checking their website today, I don't see it. I'd guess that low sales have caused them to at least suspend, maybe drop, the product.

That's funny because I actually made a similar product design pitch in 1998 but it never went anywhere, in part due to the difficulty of finding assets with similar cash flows. I left the company shortly thereafter but I'm pretty sure it just dies on the drawing board.

 

[brewer12345]

Obviously you haven't sold many, amirite?

I would rather keep my soul more or less intact.

 

[Midpack]

I'd try MetLife. I know they issue "pure" deferred annuities (no cash value). At one time they had COLA'd products.

I can't find the link now, but someone posted a source quoting annuities within the last few months with fixed COL adjustments, say 3%/yr. Maybe that member will post here again. Having a fixed COL adjustment like 3%/yr seems like a good alternative anyway. As I recall the first years income was about 60% of the income for a standard fixed payment immediate annuity of the same initial cost.

I can understand why no provider would quote on an annuity with COL based on CPI or any actual inflation metric in the future. It would be wildly variable, so they'd prob have to quote outrageous numbers to protect themselves. Again, sorry I can't find the link. FWIW..

 

[Independent]

I can't find the link now, but someone posted a source quoting annuities within the last few months with fixed COL adjustments, say 3%/yr. Maybe that member will post here again. Having a fixed COL adjustment like 3%/yr seems like a good alternative anyway. As I recall the first years income was about 60% of the income for a standard fixed payment immediate annuity of the same initial cost.

I can understand why no provider would quote on an annuity with COL based on CPI or any actual inflation metric in the future. It would be wildly variable, so they'd prob have to quote outrageous numbers to protect themselves. Again, sorry I can't find the link. FWIW..

If the annuity inflation language is consistent with the inflation protection in TIPS, then the company can off-load the inflation risk by buying TIPS.

The primary problem with that approach in 2012 is that the flight to quality has driven yields on a US Treasuries down. (I know, it's hard to think of US Treasuries as being that wonderfully safe, but I understand that people are even more concerned about other options.)

 

[meierlde]

The primary problem with that approach in 2012 is that the flight to quality has driven yields on a US Treasuries down. (I know, it's hard to think of US Treasuries as being that wonderfully safe, but I understand that people are even more concerned about other options.)

Perhaps the way to put it is that US Treasuries are the least worst safe investment out there. Right now its all a question of finding the least worst, as there are no good choices, since even putting currency in a safe deposit box is the equivalent of a US very short term Bill. (The government could in theory repudiate the entire stock of currency, all be it that least to a revolt)

 

[KRobby]

I would rather keep my soul more or less intact.

A Gallup poll shows 76% of annuity owners are happy with their purchase.

Another survey showed 'nearly seven in 10 Financial Advisors had at least one client request for an annuity in the last 12 months.'

Over 9 in 10 opted to pay the additional fee to have the opportunity for the guaranteed lifetime benefit rider.

I doubt these thank you's leave advisors feeling an empty soul.

Cheers

Robby