Met Life Annuity 4% guaranteed interest

[Kayzmum]

My husband bought a MetLife annuity/life insurance policy about 40 years ago that guarantees 4% interest. He's 69 and retired. I'm 59 and working full time and putting money into 401Ks and 403Bs. Since I'm getting close to retirement age, possibly at 62, I'm thinking about putting some of my investments into this annuity since it's guaranteed 4%. He will have to start withdrawing from it at 74, but I could just reinvest that somewhere else when the time comes. I'm the sole beneficiary. I'm thinking it's a safe place to get 4% interest.

Can anyone think of a reason why this wouldn't be a good idea?

Any advice is appreciated.

 

[marko]

Can anyone think of a reason why this wouldn't be a good idea?

Inflation. It's 4% of a static amount.

If that 4% is getting say, $1000 a year that might be nice. But in 20 years that $1000 might only buy dinner.

 

[pb4uski]

4% with no interest rate risk and negligible credit risk is pretty attractive in this interest rate environment.

I have an old whole life policy that is similar and I am still making premium payments and consider the cash value to be part of my fixed income allocation.

 

[VanWinkle]

Make sure the guaranteed 4% is not including a return of principle......

 

[pb4uski]

It doesn't.... you are confusing interest rates with payout rates.... this is an interest rate on a deferred annuity or accumulation phase annuity.... NOT a payout rate.

4% was a common minimum rate guarantee back in the 70s and 80s.

 

[ncbill]

But what are the annual fees?

 

[capjak]

4% return with a A++ insurance company for fixed income right now seems like a very good option for a portion of fixed income.

Where do I get one like this, assuming the 4% is after the fees?

 

[Chuckanut]

The only way I know to get such a sage secure guaranteed 4% is to pay off a 4% loan such as a mortgage.

Sounds like a deal to me. I also like PB4's idea of fitting it into your AA.

 

[corn18]

Can you put my money in it, too? If it's 4% guaranteed after ALL fees, taxes, quid pro quo, etc... and it's liquid, I would put a lot of my fixed income into it. Heck, 4% is what I am forecasting for the nominal return on my 60/40 portfolio. Good stuff if it checks out.

 

[joeea]

My husband bought a MetLife annuity/life insurance policy about 40 years ago that guarantees 4% interest. He's 69 and retired. I'm 59 and working full time and putting money into 401Ks and 403Bs. Since I'm getting close to retirement age, possibly at 62, I'm thinking about putting some of my investments into this annuity since it's guaranteed 4%. He will have to start withdrawing from it at 74, but I could just reinvest that somewhere else when the time comes. I'm the sole beneficiary. I'm thinking it's a safe place to get 4% interest.

Can anyone think of a reason why this wouldn't be a good idea?

Any advice is appreciated.

Take a good look at your husband's statements.
Carefully compare what was invested and what the payout will be.
Check for surrender charges and surrender period.
Determine what "4% guaranteed" actually means for this policy.

You'll likely find that this isn't like a 4% compounded return, but is instead a 4% payout of what you invested and what the funds earned. And likely the commissions were taken off the top at investment time, along with fees deducted periodically along the way.

Before purchasing any product, read carefully and understand all of the details.

How much did he invest 40 years ago? It's not hard to calculate what $X invested at 4% compounded for 40 years would be worth today.

If you aren't able to interpret your husband's statement, a good fee-only fiduciary financial adviser can do it for you. They can explain exactly what he invested, what he can get out, and what kind of return that actually translates to.

 

[kgtest]

The only way I know to get such a sage secure guaranteed 4% is to pay off a 4% loan such as a mortgage.

Sounds like a deal to me. I also like PB4's idea of fitting it into your AA.

+1 the only 4% guarentee I have is on my mortgage. Paying myself against the interest rate of the loan is a great bet and everyone need's a home somewhere. Equity gains and tax deductions are a bonus IMHO.



Used to work at an annuity shop doing IT work and only the boomers were offered those rates...certainly none of our new products could compete with that. Layoffs ensued.

 

[Dtail]

Not a guarantee, but currently getting 4.24% on my 401k Stable Value fund.

 

[fosterscik]

It doesn't.... you are confusing interest rates with payout rates.... this is an interest rate on a deferred annuity or accumulation phase annuity.... NOT a payout rate.

4% was a common minimum rate guarantee back in the 70s and 80s.

I have a similar policy from valic with a 4.5% min guarantee. It has no fees associated with it and pays exactly 4.5% interest (pretty easy to check the balance over time). It also has no surrender charges because, in my case, it meets the 10 year funded threshold. There is no way I will surrender this policy unless/until interest rates rise considerably. Its a valuable part of my fixed income AA.

 

[imoldernu]

DW has a policy that was originally "Travellers" but changed hands and is now a Met Life policy, managed by Brighthouse, whatever that is.
Bought in 1984 for $8000.
Current annuity cash out value $56,000 or, $67,000 based on ten years payout of $701/mo.
The original interest rate was@about 11% dropping to a minimum of 4%.

I didn't know one could add to annuity, but then I'm not very smart about money. With a $20/yr. "management" fee, it still seems like a pretty good deal. We're just leaving it in the account to build, as we don't need it right now.

 

[Independent]

I've got a Flexible Premium Retirement Annuity with a 4.5% guarantee. No fees, no surrender charge. Bought it in 1981. In this rate environment, I'm happy to keep it.

The "Flexible Premium" title says I should be able to add more money. But, the contract says that if you go x years without adding any, you lose the option of adding more.

I'd suggest looking at the contract and/or calling the company to make sure you have the option of adding money.

 

[Independent]

Take a good look at your husband's statements.
Carefully compare what was invested and what the payout will be.
Check for surrender charges and surrender period.
Determine what "4% guaranteed" actually means for this policy.

I do this math every year. For mine, the 4.5% is exact.

The key is that, like the OP, I bought the policy a long time ago.

 

[pb4uski]

But what are the annual fees?

None, it is an old-style fixed annuity.... the annuities with fees are usually variable annuities or indexed annuities.

 

[CRLLS]

I can't speak about MetLife annuities. I can say, read and understand the policy and its guarantee. My recent experience with MetLife on a 45 yr old insurance policy taught me that the 1st 2nd and 3rd tier help at MetLife give answers that is beneficial to them, not the consumer. It took me several months to arrange payouts according to my written policy which was ~20% higher than what the 1st tier people told me I needed to do.

Maybe, being an annuity to start with, you only have to deal with the one spin-off, Brighthouse.

 

[Tom52]

I bought a $100,000 universal life insurance policy back in 1980. I think I initially invested $6,000 into it. I made monthly payments until retiring 4 years ago. Currently the earnings are more than paying for the insurance portion and the cash value increases every month. I have not paid much attention to it but I think it is guaranteed to earn in the 4% to 4.5% range.

Recently the agent mentioned I could add $ to increase cash value to pass on to heirs tax free. At this point I have not done this but I do consider the cash value as part of my net worth.

 

[CRLLS]

Tom, you do understand that the guaranteed rate is reduced by the premium it is paying. So you may be earning only ~3% ish?

Look closely at your policy. Do you have a guaranteed settlement paragraph in your WL policy? This option was ~ 20% higher than a comparable immediate annuity quotes for my policy earlier this year.

Of course, if you stay the current course, let the policy pay the premiums and add $, your agent and your heirs will thank you when the time comes. The decisions are all personal choices.

 

[pb4uski]

Tom, you do understand that the guaranteed rate is reduced by the premium it is paying. So you may be earning only ~3% ish?
...

That totally false. If the policy is being used to pay the premium, even ifthe net increase is 3% he is still earning 4%.

An example...account value is $10,000 and earns 4% and annual premium is $100. Account value of $10,000 at beginning of year is $10,400 at end of year with interest.... after deduction for $100 premium the account value is $10,300.

The policyholder still earned 4% (the $400 of interest)... they just chose to use some of that interest to pay the premium rather than write aheck.

 

[ncbill]

I bought a $100,000 universal life insurance policy back in 1980. I think I initially invested $6,000 into it. I made monthly payments until retiring 4 years ago. Currently the earnings are more than paying for the insurance portion and the cash value increases every month. I have not paid much attention to it but I think it is guaranteed to earn in the 4% to 4.5% range.

Recently the agent mentioned I could add $ to increase cash value to pass on to heirs tax free. At this point I have not done this but I do consider the cash value as part of my net worth.

Cost of insurance is recalculated annually on universal life policies.

So the policy will eventually blow up unless you put in more cash.

IMHO, these are sold because at the beginning their premiums are much less than whole life.

 

[pb4uski]

Cost of insurance is recalculated annually on universal life policies.

So the policy will eventually blow up unless you put in more cash. ....

Not necessarily, it depends on how much it is currently funded... the policies are typically designed so that if you pay the recommended premium that the policy account value grows sufficiently so that later in life it is sufficient, along with interest, to fund cost of insurance charges and admin expense fees.

It is true that if one fails to pay the recommended premium that later the account value is inadequate (underdfunded policy) and eventually the policy will expire.

 

[Tom52]

Cost of insurance is recalculated annually on universal life policies.

So the policy will eventually blow up unless you put in more cash.

IMHO, these are sold because at the beginning their premiums are much less than whole life.

I took a quick look at my policy for the first time since I bought it. The policy states the cash value earns minimum of 4.5% compounded monthly. Current monthly insurance premium is ~$78 so the cash value is probably increasing at a net rate of about 3%. That $78 monthly premium includes a monthly premium for a $25k term policy for DW that is a rider to the universal life policy.

If the cash value starts to decline due to increasing premiums I could make a decision to cash out, or worst case, I continue the status quo and my heirs get $100k tax free.

 

[Kelor]

I have an old VUL with a 5.5% minimum rate fixed account. There is no M&E on the fixed bucket, and the cost of insurance is minimal. I only wish I could put more money into it. I max it out every single year.

You are doing great with Met!