Interesting comments on annuities

[FIREd]

Quote:

Originally Posted by brewer12345 What planet do you live on?

I'm afraid we'll never know...

[kumquat]

Quote:

Originally Posted by brewer12345 ......................What planet do you live on? Quote: Originally Posted by FIREd I'm afraid we'll never know...

I have a pretty good idea what planet it isn`t. Only leaves 8 others.

[pb4uski]

Quote:

Originally Posted by kumquat I have a pretty good idea what planet it isn`t. Only leaves 8 others.

That presumes that he is from this galaxy.

[rescueme]

Talk about a thread that took a wrong turn ...

How did EIA's get into the mix? They were not mentioned in the article the OP posted, or questioned:

"Economists have long been mystified as to why people do not make greater use of single-premium immediate annuities..."

There is a thread that is discussing EIA's (http://www.early-retirement.org/foru...fia-61868.html) but it has nothing to do with the discussion of SPIA's, the subject of the paper referenced.

Golly gee

Does anybody have anthing of substance to add to this thread (I've already contributed) pertaining to the subject material contained in the paper cited?

[rescueme]

Quote:

Originally Posted by braumeister Maybe they got better rates in 1994 than are available today. About Annuities: Saving for Retirement

The reference is for non-qualified contracts (e.g. not funded by 401(k), TIRA, or retirement lump-sum contributions from an employer).

Being that general availabilty of IRA's for folks that did not have company pensions did not start until 1982 and a lot of companies did not offer 401(k) accounts till that time - or later, it would make sense that older folks would have only qualified money to put into an annuity (SPIA).

I wonder what the stats are for those who are newly retired (within the last 5-10 years) and had most of their retirement funds in qualified funds, especially those that received a generous lump sum rather than a pension, upon retirement.

Did they purchase an SPIA earlier in their retirement vs. the "general advice" to wait till later (e.g. late 70's, 80's, or beyond)?

[Free_at_49]

The article quoted in the OP is nothing but a sales pitch. The graph on p.2 makes it look like you’re a loser if you don’t buy an annuity.

In theory a SPIA is the best way to maximize lifetime spending and peace of mind. But real life is not theory, you are no longer investing, you are gambling with your money. Personally I don’t trust American insurance companies or their longevity. Remember, the largest insurance company, AIG went bankrupt a few years ago and was saved by taxpayers. Other bankruptcies included Bank of America, Citibank, General Motors, Ford, Chrysler, and a long list of banks. We’ve already spent trillions bailing out Wall St., do you still want to gamble?

[rescueme]

Quote:

Originally Posted by Free_at_49 (snip)...you are no longer investing, you are gambling with your money.

I guess you don't equate investing with gambling?

Two points:
- Yes, the insurance company that underwrites your SPIA can go under (although history shows little evidence of this), but you are also protected by your state for various amounts, generally in the $100-300K range. Look upon it as a "shared risk". If you wish to invest more than the state limit with one policy (you can have multiple policies), that risk is up to you. BTW, I/DW are above our state limit (but only at 10% of our total retirement portfolio value at the time of purchase) so we did decide to take that risk. Funny, but our current joint TRP value is higher than at the time of my retirement (over 5 years ago), so the risk was apparently worth it.

- Secondly (and I've commented on this more than once), an SPIA is not an investment vehicle. It is an income vehicle. One that is outside the up/down variance of the equity/bond markets, and even CD's (if you wish to use that as an investment vehicle, which normally does not provide monthly income, as an SPIA does - including a return of principal). If you only want to invest, then an SPIA is not necessarily for you. However, if you need a base income (much like a pension - usually not COLA'ed) vehicle, an SPIA could be the answer. As I stated before, they are not for everybody, but should be considered as part of an overall retirement income plan.

BTW, DW/me can, and do have more in the equity market (we're both retired) since our income risk has actually been reduced with the SPIA. We have no pension or SS income at this time. The only thing we use as income is our joint portfolio withdrawls, along with our monthly SPIA income. We don't see ourselves ever changing our equity AA to less than 50-60% as it is now, even though we (at least me) have been retired a bit over five years. A lot of folks would have much less equity exposure at our age (mid-60's), but we feel with our current SPIA (along with our respective SS income in the future, along with two small DB's for DW) we can take that risk.

[youbet]

I question the "guaranteed" part of annuities.

Our situation is:

DW has a pension from the state of Illinois. She has received formal notice that this pension (which she has been collecting for 10+ years) will be cut with details forthcoming as the legislature works out the details.

I am due a pension from MegaCorp but have been informed the pension fund is seriously underfunded. I also note on a concurrent thread here on this board that the PBGC is not in good shape.

Few feel that SS will survive as-is and I'm expecting my benefit to be reduced either through additional taxes, means testing, straight out cut, whatever.

How can I find an annuity that is "guaranteed" more securely than our family's private and public pensions or SS have turned out to be? At this stage, might refraining from buying an annuity and continuing to manage the money myself (which I've been doing with fair success) add to my diversity and be the more prudent move? Before I'd buy an annuity I'd have to feel that the insurance company is more secure than either our state government, the at one time prestigeous MegaCorp I worked for or SS.

[Chuckanut]

Quote:

Originally Posted by Free_at_49 Other bankruptcies included Bank of America, Citibank, General Motors, Ford, Chrysler, and a long list of banks. We’ve already spent trillions bailing out Wall St., do you still want to gamble?

When did Ford and Bank of America declare bankruptcy?
I missed that.

[brewer12345]

Quote:

Originally Posted by youbet I question the "guaranteed" part of annuities. Our situation is: DW has a pension from the state of Illinois. She has received formal notice that this pension (which she has been collecting for 10+ years) will be cut with details fothcoming as the legislature works out the details. I am due a pension from MegaCorp but have been informed the pension fund is seriously underfunded. I also note on a concurrent thread here on this board that the PBGC is not in good shape. Few feel that SS will survive as-is and I'm expecting my benefit to be reduced either through additional taxes, means testing, straight out cut, whatever. How can I find an annuity that is "guaranteed" more securely than our family's private and public pensions or SS have turned out to be? At this stage, might refraining from buying an annuity and continuing to manage the money myself (which I've been doing with fair success) add to my diversity and be the more prudent move? Before I'd buy an annuity I'd have to feel that the insurance company is more secure than either our state government, the at one time prestigeous MegaCorp I worked for or SS.

All insurers are not created equal. I think if you do some research you will find that the credit quality of the largest mutual companies has changed very sowly over time (decades). They don't have shareholders to please, they don't have a way to pay dividends or buy back stock and decapitalize the company, and they tend to think in terms of years or decades rather than the next quarter. Totally different animal from the stock companies.

[rescueme]

Quote:

Originally Posted by brewer12345 (snip) ...they tend to think in terms of years or decades rather than the next quarter. Totally different animal from the stock companies.

Funny you mention that.

I retired from a global mega-corp which over time was "owned" by various global companies, including one that was French during the late 90's.

During our "global corporate culture" classes, which we were expected to participate, it was explained that they (French) looked at long term results much different than their U.S. counterparts.

The explaination was thus:

Think of two different sports (U.S. Football vs. Soccer - AKA "football" in most Euro countries).

In U.S. Football, you are trying to get to a goal, and each yard gained/lost is "measured" (much like quarterly reports, in the U.S.).

However, in Soccer, you had a goal (the same as in U.S. Football), however, the game can have the ball anywhere on the field. It was not measured where, or if any "gain/loss" on the field was currently shown.

What counted was that "the ball reached the goal", regardless of where it was at, at any time on the field.

U.S. companies measure the quarter (90 days); French companies measure results at a longer period - be it decades or even centuries.

Yes, I'm not keeping on the thread subject, but your comment brought back "memories".

Maybe insurance companies are the soccer players?

[meierlde]

It should be noted that AIG's parent was the one in trouble. The insurance companies are state regulated and one of AIG's problems was that its AAA rating did no reflect that the company could not really get at the resources of the regulated insurance companies. My parents had an annuity with Conseco which went belly up, but the annuity paid out for its entire length.

[rescueme]

Quote:

Originally Posted by meierlde It should be noted that AIG's parent was the one in trouble. The insurance companies are state regulated and one of AIG's problems was that its AAA rating did no reflect that the company could not really get at the resources of the regulated insurance companies. My parents had an annuity with Conseco which went belly up, but the annuity paid out for its entire length.

Thanks for reminding me. I thought there was no problem with AIG's "sub-company" annuties, but you validated that situation.

[easysurfer]

What's the actual likelihood that an insurance company that provides annuities would go belly up?

Would be nice if there was some site that kept track of such information so we can make a more concrete judgement instead of know that "a company going belly up is just a possiblility."

Then of course, such information would make things too easy .

[travelover]

Quote:

Originally Posted by Chuckanut When did Ford and Bank of America declare bankruptcy? I missed that.

Me, too.

[Lakewood90712]

Quote:

Originally Posted by brewer12345 Stockbroker? Do they even exist any more? What planet do you live on?

They sure do. And every one of them has an insurrance sales lic. Like the creeps over at Smith Barney. About 10 years ago , when my Mother got to the mandatory dist. on her sizeable traditional IRA , they kind of neglected to mention a Roth conversion, and told her " Well, you have to pay the tax on gains now, but we have found a way you can avoid taxes in the future - an Annuity ". The "Advisor " retired early shortly thereafter , I presume off of commisions selling annuities to un-suspecting seniors , like Mom.

[youbet]

Quote:

Originally Posted by easysurfer What's the actual likelihood that an insurance company that provides annuities would go belly up?

Dunno. But who would have thought that a state gov't pension, a MegaCorp pension + PBGC or SS would be in question?

As Brewer pointed out, the insurance companies that provide annuities vary considerably one from the other and it will require research and diligence to ensure that a purchased annuity isn't just another risky item on one's retirement income list.

[rescueme]

Quote:

Originally Posted by Lakewood90712 (snip)... Well, you have to pay the tax on gains now, but we have found a way you can avoid taxes in the future - an Annuity ". The "Advisor " retired early shortly thereafter , I presume off of commisions selling annuities to un-suspecting seniors , like Mom.

There are annuties and there are annuties. I assume they were speaking of an EIA (Equity Income Annuity) - not the subject of this thread (which is for SPIA's - not EIA's).

Unfortunately, many "wolf's" are in "sheeps" clothing in this area.

Don't confuse an SPIA (the subject of this thread) with an EIA. They are two different "animals"...
BTW, every person who is associated with issuance of an annuity (any type) must be licensed to do so. My SPIA (after many months of investigation) was issed via Fidelity (yes, FIDO - they had better rates than VG or other "suppliers" at the time).

However, he was great on notifing me of an increase (although small) of an SPIA contract that was in process due to a change in interest rates (nothing more than what is in the mortgage/loan market today).

He scrapped the original proposal and sent me a new contract (FEDEX overnight) to get me the better term.

Oh, BTW - there was no "cost" involved for our SPIA. Any expenses were to be "recovered" by their investment of our preimum over the long term. There were no (known) fees in the contract.

[Free_at_49]

Quote:

Originally Posted by rescueme I guess you don't equate investing with gambling? ...

No, when you own stock, you’re investing in real companies and you’ll get dividends generated by the hard work and talent of the people that work there.

When you buy a life annuity you’re gambling that you’ll live longer than most, and the insurance company is gambling that you may drop dead tomorrow.

Also, I’m uncomfortable with idea that somebody stands to profit greatly form my early death, I even wonder if they might help me get there sooner. . .

[easysurfer]

Quote:

Originally Posted by youbet Dunno. But who would have thought that a state gov't pension, a MegaCorp pension + PBGC or SS would be in question? As Brewer pointed out, the insurance companies that provide annuities vary considerably one from the other and it will require research and diligence to ensure that a purchased annuity isn't just another risky item on one's retirement income list.

What I would want to see is for example in relation to other risks such as:

1) Getting struck by lighting

2) Airplane crash

3) Automobile crash

etc... you get the picture..

How risky is an anuuity going belly up if one gets one with a state's covered limits.

In otherwords, is the risk a real risk or an event that can happen but is quite unlikely?