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Old 07-27-2012, 10:45 PM   #41
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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.
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Old 07-27-2012, 10:48 PM   #42
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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.
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Old 07-28-2012, 12:24 AM   #43
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Remember how all of these products are generally sold. Its all about the sizzle, not the steak
Obviously you haven't sold many, amirite?
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Old 07-28-2012, 02:05 PM   #44
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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.
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Old 07-28-2012, 02:15 PM   #45
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.....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.
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Old 07-28-2012, 02:18 PM   #46
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Obviously you haven't sold many, amirite?
I would rather keep my soul more or less intact.
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Old 07-28-2012, 02:25 PM   #47
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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..
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Old 07-28-2012, 03:43 PM   #48
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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.)
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Old 07-28-2012, 04:33 PM   #49
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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)
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Old 07-28-2012, 05:42 PM   #50
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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

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Old 07-28-2012, 05:59 PM   #51
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A Gallup poll shows 76% of annuity owners are happy with their purchase.
This only goes to prove that the other 24% woke up.
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Old 07-28-2012, 06:10 PM   #52
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Financial illiteracy. We has it. Some folks profit from it.

The actual paper is $5 for a PDF, but here's an online summary of one interesting bit:
http://www.forbes.com/2010/01/12/cfp...-f-cooley.html

How bad is it? Two economists, Annamaria Lusardi and Olivia Mitchell, have been studying financial literacy and the effectiveness of efforts to promote it for many years. The results are not at all encouraging. To take just a few of their examples, they asked the following questions of a representative sample of Americans over the age of fifty:

1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years how much do you think you would have in the account if you left the money to grow: more than $102, exactly $102, less than $102?

2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year would you be able to buy more than, exactly the same as or less than today with the money in this account?

3. Do you think that the following statement is true or false? "Buying a single company stock usually provides a safer return than a stock mutual fund."

Only 50% of respondents were able to answer the first two questions correctly and less than a third were able to answer all three. In a related study less than 18% of people surveyed were able to answer a simple two-period compound interest problem. This is pretty discouraging. Not surprisingly the extent of financial illiteracy differs with education, gender, race and age. Most efforts to improve financial literacy are not effective.


The depressing original and abstract:
http://papers.nber.org/papers/w17103

Americans' Financial Capability
Annamaria Lusardi
NBER Working Paper No. 17103
Issued in June 2011
NBER Program(s): AG

This paper examines Americans’ financial capability, using data from a new survey. Financial capability is measured in terms of how well people make ends meet, plan ahead, choose and manage financial products, and possess the skills and knowledge to make financial decisions. The findings reported in this work paint a troubling picture of the state of financial capability in the United States. The majority of Americans do not plan for predictable events such as retirement or children’s college education. Most importantly, people do not make provisions for unexpected events and emergencies, leaving themselves and the economy exposed to shocks. To understand financial capability, it is important to look not only at assets but also at debt and debt management, as an increasingly large portion of the population carry debt. In managing debt, Americans engage in behaviors that can generate large expenses, such as sizable interest payments and fees. Moreover, more than one in five Americans has used alternative (and often costly) borrowing methods (payday loans, advances on tax refunds, pawn shops, etc.) in the past five years. The most worrisome finding is that many people do not seem well informed and knowledgeable about their terms of borrowing; a sizeable group does not know the terms of their mortgages or the interest rates they pay on their loans. Finally, the majority of Americans lack basic numeracy and knowledge of fundamental economic principles such as the workings of inflation, risk diversification, and the relationship between asset prices and interest rates.
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Old 07-28-2012, 06:25 PM   #53
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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
I am sure 99% of all dope addicts want more of their substance of choice, too. So what? Your stats simply suggest that there are a lot of unfortunates out there who bought the sales pitch hook, line and sinker and have not figured out they were had yet. Tell us about the litigation surrounding these products and related sales practices, why don't you?
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Old 07-28-2012, 06:52 PM   #54
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I am sure 99% of all dope addicts want more of their substance of choice, too. So what? Your stats simply suggest that there are a lot of unfortunates out there who bought the sales pitch hook, line and sinker and have not figured out they were had yet. Tell us about the litigation surrounding these products and related sales practices, why don't you?
I have to agree with this. Most people only want to know 2 things. Yield and is it guaranteed. Many don't ask questions beyond that. If they did, the answers would give them reason to pause. As a salesman who was trying to sell me one said to my husband , "Gee usually all I have to do is tell customers about the 5% bump for the next 5 years and it's over. I don't have to up sell them anymore".

Once in and once they don't function as originally thought...there are some unhappy campers.

However those that know the charges and risks going in....are probably satisfied with what they are getting ...as long as they stayed below their states level of insurance for these products.

I suppose what I don't like is the sales pitch that does NOT even begin to tell you how these things function (in down markets, in catastrophic markets, if the insurer goes belly up...etc.)
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Old 07-28-2012, 07:19 PM   #55
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A Gallup poll shows 76% of annuity owners are happy with their purchase.
Maybe they got better rates in 1994 than are available today.

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Although their average age is 70, the average age at which owners purchased their first annuity was 52.
About Annuities: Saving for Retirement
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Old 07-28-2012, 07:41 PM   #56
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I better get over to Costo before they close , and get more microwave popcorn. This Movie is a lot longer than I thought it would run. The Annuity salesmen usually leave in a huff and end the show much sooner.
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Old 07-28-2012, 08:59 PM   #57
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I am sure 99% of all dope addicts want more of their substance of choice, too. So what?
Yes, dope addicts is good analogy to someone that wants the peace of mind of a guaranteed income stream. You're a smart almost actuary.


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Your stats simply suggest that there are a lot of unfortunates out there who bought the sales pitch hook, line and sinker and have not figured out they were had yet. Tell us about the litigation surrounding these products and related sales practices, why don't you?
Read again, the survey was seven out of 10 Advisors had client requests.
Is a client request a sales pitch? If you're so interested in tactics and ideas on how to churn and burn, call your stock broker.

-Robby
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Old 07-28-2012, 09:09 PM   #58
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Robby, have a nice trip...
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Old 07-28-2012, 09:10 PM   #59
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I have been expecting interest rates to stay low for a while, and it could be much longer according to this persuasive paper from Hoisington Management. http://www.hoisingtonmgt.com/pdf/HIM2012Q2NP.pdf

I only bring it up for folks who are counting on interest rates to rise before purchasing an annuity. What if they don't for another 15 years?
Thank you Audrey for posting this paper. Explains a lot, all of it negative, since there is absolutely no chance that policies will be changed in the current intellectual and political environment.

Ha
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Old 07-28-2012, 09:14 PM   #60
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Yes, dope addicts is good analogy to someone that wants the peace of mind of a guaranteed income stream. You're a smart almost actuary.




Read again, the survey was seven out of 10 Advisors had client requests.
Is a client request a sales pitch? If you're so interested in tactics and ideas on how to churn and burn, call your stock broker.

-Robby
Stockbroker? Do they even exist any more? What planet do you live on?
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