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Likely story?
Old 09-24-2010, 01:34 PM   #1
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Likely story?

I was meeting with a financial planner the other day who told me about a client who had done something unique. I found it kind of hard to believe and would like to run it by this forum to see if others thought this could be done.

Evidently her client bought a ton of Google before its prime. He ended up making a couple million by the time he sold out. About 10 years before he decided to retire he bought a lifetime annuity with $1 mill. The terms were that he would be paid $100,000 a year for the rest of his life and obviously if he dies, the payments stop. Because he didn't need the money yet, each year he pocketed the $100,000 for the next 10 years and thus had his $1 mill back and collected $100,000 a year still from the insurance company.

Has anyone ever heard of doing this with an annuity? I'm just wondering why an insurance company would agree to these terms? If it is realistic, it may be something I look into when I first get a hold of $1 mill (whenever that will be ). Now the guy has all his money and is getting paid the 100K/year. Smart, dumb, or unrealistic?

Thanks!
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Old 09-24-2010, 01:38 PM   #2
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run away...
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Old 09-24-2010, 01:41 PM   #3
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Ask her for her client's phone number--tell her you want to check her references.

Then run away.
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Old 09-24-2010, 01:44 PM   #4
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Old 09-24-2010, 01:48 PM   #5
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Actually if you are old enough and live longer than expected its certainly mathematically possible.

http://www.immediateannuities.com/in...ion/rates.html

plug in male 77 years old and 1 million input

voila
$8,524 per month

all you have to do is live to be 87
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Old 09-24-2010, 01:50 PM   #6
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It was a free mandatory session with the USAF. In fact I like to test people like her and I asked about ways to take money out of an IRA before 59.5... she wasn't sure. Hence my suspicion of her story.

Mind you, the session was not mandated because I'm not managing money, they had everyone who PCS to this base do it.
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Old 09-24-2010, 01:56 PM   #7
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Originally Posted by RetireUnder40 View Post
It was a free mandatory session with the USAF. In fact I like to test people like her and I asked about ways to take money out of an IRA before 59.5... she wasn't sure. Hence my suspicion of her story.

Mind you, the session was not mandated because I'm not managing money, they had everyone who PCS to this base do it.
Those FREE sessions can cost you buckets of money. Buyer beware.

When they tell you they have an annuity that's really good. What they mean is that's it's really good for them and their commission.

I do hope you got a steak dinner out of it though
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Old 09-24-2010, 01:56 PM   #8
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With a high enough interest rate it would be an actuarially sound bet for the insurance company. Or if the annuitant was old enough or in poor enough health (ie not expected to live much more than 10 years).

If this were 1980-something with double digit interest rates (and inflation to match), or if the annuitant were 75, then sure I'll buy this story.

Of course I don't think hardly anyone ER'ing today could get anywhere near these terms (10% a year).

You realize the guy is trying to sell you on an annuity right? Sound too good to be true, then it probably is.

Edited to add: clearly the high interest rate case from the 1980's cannot be the explanation given the fact that the person got rich off of google (not around in the 1980's). Hence the only explanation can be that the annuitant was old (over 65 most likely) when he annuitized. The timeline is kind of sketchy though. The annuitant would have sold his google stock (at the time privately held) in September 2000 in order to annuitize and collect for 10 years (assuming he just collected his 10th year check this month). Looks like the first funding of google happened in 1998, so this annuitant must have been one of the original investors in google or gotten in shortly thereafter (sometime between 1998 and 2000, and in enough time to "make millions" by Sept 2000).

In other words, the story itself is at best misleading and at worst an outright lie based on the facts of the story.
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Old 09-24-2010, 01:58 PM   #9
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The planner forgot to tell you the guy was 80 when he retired.
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Old 09-24-2010, 02:20 PM   #10
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Originally Posted by RetireUnder40 View Post
About 10 years before he decided to retire he bought a lifetime annuity with $1 mill. The terms were that he would be paid $100,000 a year for the rest of his life and obviously if he dies, the payments stop. Smart, dumb, or unrealistic?
Thanks!
Sounds good to me, as long as the client was about 85 years old.

Ha
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Old 09-24-2010, 03:31 PM   #11
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Ask for the same deal.
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Old 09-24-2010, 04:16 PM   #12
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Ah, the Google IPO occurred in 2004. Assuming he held the shares for a bit, there would be less than 5 years of collecting on the annuity. Even if you use Google's starting date, it's been around only for 11-12 years and even with that, the person would likely have had to wait until after the IPO.

The only way for this to have worked, would have been for the person to have bought GOOG and then with the cash, travel back in time to buy the annuity and live out the rest of his life.
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Old 09-24-2010, 04:28 PM   #13
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Sounds to good to be true.
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Old 09-24-2010, 10:57 PM   #14
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Likely story? I can certainly believe that you were told this story by an annuity salesman, I don't think you are making it up.

Oh.... did you mean is the story told by the salesman true? Ummm, that depends on how you define 'true'.

And if it is true, and as someone else mentioned, if you can get this deal at your age, I'd turn it down. That company will go broke doing this and you won't see the money anyhow

-ERD50
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Old 09-25-2010, 01:56 AM   #15
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doesn't sound plausible to me, sorry.
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