One more time, variable annuities....

[FinanceDude]

Originally Posted by Marquette

You should buy an annuity too... then you'd have your reputation, your word, and a safe income stream for life. Not too shabby.

You work at [moderator edit], right?

Moderator note: member did not want name of employer revealed]

[FinanceDude]

Originally Posted by ERD50

So, would that be a fee you pay upfront to avoid paying the other fee you might pay?

Is there a fee for asking that question? -ERD50

No, the internal expenses in some cases are higher, but mostly it means the insurance agent makes less commission up front, quite a bit less........

[haha]

Originally Posted by brewer12345

There are perhaps a half dozen life insurers I can think of that will pretty much never fail (or if they do we will all be sleeping under overpasses and eating squirrel for dinner). Outside of that select group, the likelihood of failure isn't particularly high, but it is non-zero and if we are talking about a decent sized chunk of net worth that is an issue.

As for a certain salesman, what is the saying? "Arseholes always advertise."

Brewer, are any of these Never Fail group stock companies?

ha

[brewer12345]

Originally Posted by haha

Brewer, are any of these Never Fail group stock companies?

ha

No.

Having said that, it is pretty hard to imagine that policyholders would ever be impaired at the really huge, well-rated stock companies running around out there. Due to the nature of insurance regulation and the products these companies sell, the insurance entities are really hard to kill.

[donheff]

Art G: you mentioned that some of your clients have "guaranteed minimum" principle + 1.5%/year floors. If they are past the penalty period can they dump the VA now? With all of the advice about the problems with VAs (high fees, lousy returns over the long term) it would seem that now would be a great time for purchasers with buyer's remorse to get out.

[Marquette]

Originally Posted by FinanceDude

You work at [moderator edit], right?

Yes, I do work at one of the larger annuity carriers in the US. That should make me want to buy an annuity, since the full commission would be paid into the value of my annuity (for example, if there was a 10% commission on a given EIA and I threw in $100k, the value would be $110k). However, I'm concerned about carrier risk and the state insurance pool in the event of a default. Call it recency bias or cynicism from being too close to the underlying operations of the company (given my past work at another company, I'm inclined to think I'm cynical as the money wasted there was even worse)... but I'm concerned about the longevity of my current employer at least in their current form.

Beyond that, some people do know where I work and I'd be fine cluing in anyone that asked, but I'd prefer if the information shared in confidence not be public.

[FinanceDude]

Originally Posted by Marquette

Yes, I do work at one of the larger annuity carriers in the US. That should make me want to buy an annuity, since the full commission would be paid into the value of my annuity (for example, if there was a 10% commission on a given EIA and I threw in $100k, the value would be $110k). However, I'm concerned about carrier risk and the state insurance pool in the event of a default. Call it recency bias or cynicism from being too close to the underlying operations of the company (given my past work at another company, I'm inclined to think I'm cynical as the money wasted there was even worse)... but I'm concerned about the longevity of my current employer at least in their current form.

Beyond that, some people do know where I work and I'd be fine cluing in anyone that asked, but I'd prefer if the information shared in confidence not be public.

See my PM........

[Marquette]

Originally Posted by Art G

I've always been willing to pay fees for service. I have auto insurance though I've rarely used it. I have home owners insurance though I've rarely used it. I have life insurance though....well I'm hoping not to use it.

I wanted to touch on this statement a bit more. I carry auto insurance, homeowners insurance (well, renters insurance), an umbrella policy, health insurance, and a term life policy.

Leaving health insurance out of that list for now, those are all, essentially, calamity insurance. I join a large pool and pay a small price in exchange for protecting against an outsize economic hardship. We all pay our money in, some of us will collect much more than we ever put in, many of us will collect much less.

How do you see an annuity in general, or a VA specifically (it seems you favor those, correct me if I'm wrong), fitting into that list (I don't think it's a leap since you mentioned how you pay for lots of insurance you hope to not need). Do you view it as portfolio insurance? Wealth building vehicle? Some sort of hybrid?

Who would benefit most from an annuity? I'm sure the answer isn't "everyone". Maybe high NW people that might want to annuitize part of their portfolio to ensure a base income stream. High-salary professionals that can afford to take less risky investments to get to where they need to be. Professionals that can benefit from shielding wealth from lawsuits (a doctor funding a VA for retirement to protect that money from a malpractice claim).

In some of those instances, such as the high NW crowd, what does an annuity gain them over, say, a building a TIPS / LEAP / commodity / etc portfolio on their own? There may be value in buying your way into a large risk pool... do it late enough in life and you can get a higher payout in exchange for betting that you live longer than your mortality table. But, what else?

[Art G]

Originally Posted by Marquette

I wanted to touch on this statement a bit more. I carry auto insurance, homeowners insurance (well, renters insurance), an umbrella policy, health insurance, and a term life policy.

Leaving health insurance out of that list for now, those are all, essentially, calamity insurance. I join a large pool and pay a small price in exchange for protecting against an outsize economic hardship. We all pay our money in, some of us will collect much more than we ever put in, many of us will collect much less.

How do you see an annuity in general, or a VA specifically (it seems you favor those, correct me if I'm wrong), fitting into that list (I don't think it's a leap since you mentioned how you pay for lots of insurance you hope to not need). Do you view it as portfolio insurance? Wealth building vehicle? Some sort of hybrid?

Who would benefit most from an annuity? I'm sure the answer isn't "everyone". Maybe high NW people that might want to annuitize part of their portfolio to ensure a base income stream. High-salary professionals that can afford to take less risky investments to get to where they need to be. Professionals that can benefit from shielding wealth from lawsuits (a doctor funding a VA for retirement to protect that money from a malpractice claim).

In some of those instances, such as the high NW crowd, what does an annuity gain them over, say, a building a TIPS / LEAP / commodity / etc portfolio on their own? There may be value in buying your way into a large risk pool... do it late enough in life and you can get a higher payout in exchange for betting that you live longer than your mortality table. But, what else?

Good question. An annuity isn't right for everyone. However, with that said, what sustains people through retirement is pension income, most call it Social Security. Consider how many wouldn't be able to retire without it. Consider in the past companies offered you a pension to retire, and how few offer that any longer. Having lump sums in the bank or brokerage acct. is lovely, but the question I always get asked in the long run is, "Do I have enough money to last me the rest of my life?". If this is true, then why wouldn't guaranteed income be a positive?
To answer one of your questions above, the VA was set up as a safety net. They paid an insurance cost for one reason over a mutual fund, and that was/is a guarantee, either of principal return or income, or death benefit. I can't imagine what type of hedging would have had to be in place right now to insure preservation of wealth? I guess you could be buying straddles, but there's a cost to that. You could buy index option puts, but there's a cost to that as well. And for shorting the market also. Any hedge strategy is nothing more than an insurance ploy, and if your option expires worthless, then you just have to go buy more puts in the future. So I guess the answer to your question is yes, in my opinion, a VA is calamity insurance that just happens to have come true.
Of course, the true calamity would be if the insurance companies decided to renege on their part of the deal, which I see as a very real possibility right now by the way.
Also, a VA isn't the only strategy I've used. I have many people in laddered muni zero coupon muni bonds maturing over a twenty or thirty year time span. There have been times the people wished they were instead in the market, this isn't one of those times, but like everything else, the insurance on those bonds is pretty much worthless and left to the quality of the municipality itself.
Or, you can just buy the defensive stocks and hope for the best. Of course, there have been very few of those that have held up currently.
Real Estate,.....bahhhhh! I live in Texas where we haven't been hit with 20% of the pain of California, but it's certainly not a hot market.

Here's my one tip for this economy that got my Grandfather through the Great Depression very well........Diamonds. Forget gold. Diamonds. JMO

[Art G]

Originally Posted by Gumby

You're still not getting my dime, no matter how much you insult me.

'

Have I ever asked for any?...you're a moderator??

[Gumby]

Originally Posted by Art G

'

Have I ever asked for any?...you're a moderator??

Oh Art, you silver-tongued devil! My mother warned me about boys like you. Notwithstanding your charming ways, I'm still going to keep my dime in my little hand, trembling though it might be.

[Art G]

Originally Posted by Gumby

Oh Art, you silver-tongued devil! My mother warned me about boys like you. Notwithstanding your charming ways, I'm still going to keep my dime in my little hand, trembling though it might be.

Yeah, you're right. Being down 30% isn't so bad. Apparently your mother should have instead taught you about money management.
BTW, that dime in your hand, is now six or seven cents, keep squeezing it, perhaps in four or five years you'll get it back.

[FinanceDude]

Originally Posted by Art G

Yeah, you're right. Being down 30% isn't so bad. Apparently your mother should have instead taught you about money management.
BTW, that dime in your hand, is now six or seven cents, keep squeezing it, perhaps in four or five years you'll get it back.

[Art G]

Originally Posted by Marquette

I wanted to touch on this statement a bit more. I carry auto insurance, homeowners insurance (well, renters insurance), an umbrella policy, health insurance, and a term life policy.

Leaving health insurance out of that list for now, those are all, essentially, calamity insurance. I join a large pool and pay a small price in exchange for protecting against an outsize economic hardship. We all pay our money in, some of us will collect much more than we ever put in, many of us will collect much less.

How do you see an annuity in general, or a VA specifically (it seems you favor those, correct me if I'm wrong), fitting into that list (I don't think it's a leap since you mentioned how you pay for lots of insurance you hope to not need). Do you view it as portfolio insurance? Wealth building vehicle? Some sort of hybrid?

Who would benefit most from an annuity? I'm sure the answer isn't "everyone". Maybe high NW people that might want to annuitize part of their portfolio to ensure a base income stream. High-salary professionals that can afford to take less risky investments to get to where they need to be. Professionals that can benefit from shielding wealth from lawsuits (a doctor funding a VA for retirement to protect that money from a malpractice claim).

In some of those instances, such as the high NW crowd, what does an annuity gain them over, say, a building a TIPS / LEAP / commodity / etc portfolio on their own? There may be value in buying your way into a large risk pool... do it late enough in life and you can get a higher payout in exchange for betting that you live longer than your mortality table. But, what else?

I know I'm beating this horse to death and wasting my time, but to any who care to consider it, the paragraph I bolded is most important. If you are close to retirement, or in retirement, what is more calamitous than losing a third of your wealth? Who out there is now happy about the thought of putting off retirement for another seven or eight years? Who out there is now considering whether or not they need to cut back on future spending by a third? What is the value of peace of mind? Apparently little to nothing around here.

[Zathras]

Originally Posted by Art G

...Who out there is now happy about the thought of putting off retirement for another seven or eight years? Who out there is now considering whether or not they need to cut back on future spending by a third? What is the value of peace of mind? Apparently little to nothing around here.

The thing is Art, I have that peace of mind without your high cost VA. I am not considering whether or not I need to cut back on spending as my income has taken no hit, as a matter of fact it is still outpacing inflation.
So while VA MAY be a choice for some, it is not, by any means, the only choice for peace of mind and increasing income in a down market. It is, most likely, the most expensive answer, but certainly not the only one.

[Art G]

Originally Posted by Zathras

The thing is Art, I have that peace of mind without your high cost VA. I am not considering whether or not I need to cut back on spending as my income has taken no hit, as a matter of fact it is still outpacing inflation.
So while VA MAY be a choice for some, it is not, by any means, the only choice for peace of mind and increasing income in a down market. It is, most likely, the most expensive answer, but certainly not the only one.

I also have preferreds and other stocks for income, but ya' know what, they're cutting their dividends and some have gone out of business. Even some of my higher quality corp. bonds are now valued about 70% less than par and I'm concerned the company may be gone soon. When a Wachovia FOUR MONTH bond is paying 25%, ya' gotta' start wondering how safe it was.
I cannot disagree that a VA has its' cost. If the market had continued up, I would have thrown away money, just like not wrecking my car makes my auto insurance a big waste, just like buying protective puts at times is a big waste. However, there are no other products or investments out there that lock in high water marks and have automatic minimum step ups, not to mention a death benefit. Again, it's not a cure all, it's just one more thing worth considering, and currently something I'm glad to have used. If they renege on their promise, I invite you all to post back and tell me what a fool I am.
I am curious as to what you are using to earn your income. I'm always looking for additional ideas.

[Marquette]

Originally Posted by Art G

What is the value of peace of mind?

But, here's the thing, you're exchanging one thing to worry about for another. Only time will tell which one is right, though. I think everyone understands that a company's operating capital is separate from their investment accounts. We know there are state insurance pools that should pay out if a carrier goes bankrupt. We know that carriers are policed to keep adequate reserves.

However, many of us also feel those state pools are underfunded and couldn't pay out a full policy. Some of us are also worried that those regulators might be lax. We have anecdotal evidence (first-hand accounts) from two members on this thread about issues related to carriers going under (realizing that anecdotal evidence does not equal data).

You've said on another thread that you're not even sure how a certain carrier can afford one of the products they're selling. (sorry, I know you mentioned it privately as well, but I do recall it from one of our last VA discussions)

Brewer (yes, I know, shhh) used to make a life of tracking insurance carriers and he only has a list of half a dozen that he, personally, would bet on.

All of that combined wouldn't give me warm fuzzies. If I were a contract holder at AIG or Hartford, even with the bailout of AIG, I think I still might be a little tense over things.

And, for a VA to truly offer some portfolio insurance, I think I'd need to put a large enough percentage of my assets in that I'd be worried about carrier risk.

This comes back to there being no such thing as a free lunch. You're trading portfolio risk for carrier risk. The question remains to be answered if the trade is worth it. For some people, yes, for others, maybe not.

Plus, if we wanted peace of mind, we'd board up the soap box.

[FinanceDude]

Originally Posted by Art G

I also have preferreds and other stocks for income, but ya' know what, they're cutting their dividends and some have gone out of business. Even some of my higher quality corp. bonds are now valued about 70% less than par and I'm concerned the company may be gone soon. When a Wachovia FOUR MONTH bond is paying 25%, ya' gotta' start wondering how safe it was.
I cannot disagree that a VA has its' cost. If the market had continued up, I would have thrown away money, just like not wrecking my car makes my auto insurance a big waste, just like buying protective puts at times is a big waste. However, there are no other products or investments out there that lock in high water marks and have automatic minimum step ups, not to mention a death benefit. Again, it's not a cure all, it's just one more thing worth considering, and currently something I'm glad to have used. If they renege on their promise, I invite you all to post back and tell me what a fool I am.
I am curious as to what you are using to earn your income. I'm always looking for additional ideas.

Locally, we had a small bank offering 5.75% for 36 months........I'm sure the line is around the block. It's a new bank, I guess they need money.......