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Anybody have an annuity from Fidelity Investments?
Old 10-29-2015, 04:38 PM   #21
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Anybody have an annuity from Fidelity Investments?

Hi,

I recently compared the yields of lifetime SPIAs from Fidelity Investments vs Vanguard and was surprised to see that the Fidelity Investments annuity pays $136/mo more than Vanguard's! The yields were generated by the annuity income calculators on their websites and I assume that, if I ask for a quote from one of their agents, I'd get a different number. However, since I'm about 2 years away from purchasing the annuity, I'm merely performing research at this time!

Although most people will probably agree that it's obvious that I should purchase an annuity from Fidelity Investments, my former employer's 401K plan is with Fidelity and they scare the s*** out of me for reasons that I'd rather not delve-into now! However, I believe that it's possible that I'll get a different outcome if I have my IRA with this firm!

I've read that one of the problems with fixed SPIAs is that they provide too much income early in retirement and not enough as the retiree ages. One aspect of Fidelity's website that I like is that the annuity income calculator can provide a quote for an annuity with a 2% annual payment increase. I fed the initial payment amount into a Linux shell script that I wrote to calculate the annuity payments for 30 years. I learned that the fixed annuity pays 21% more the first year and beats the 2% annual increase annuity for 13 years. However, in the 30th year, the 2% annual increase annuity pays 40% more than the fixed annuity! Since I think that I'm going to beat the longevity odds, I'm planning on purchasing either a Fidelity, or Vanguard, SPIA that provides a fixed annual increase!

Although I have a retirement plan, I'd like feedback from retirees with an annuity from Fidelity Investments, because I've read enough complaints about this firm to be concerned!

Thanks!
John Swanson
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Old 10-29-2015, 05:17 PM   #22
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Fidelity is only the broker for the annuities, which are issued by insurance companies.

See https://www.fidelity.com/annuities/i...uities/compare
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Old 10-29-2015, 07:02 PM   #23
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Quote:
Originally Posted by JohnSwanson View Post

1) What percentage of your nest egg did you use to purchase your annuity?
18%, I bought service in a state pension plan rather than an annuity

Quote:
2) Did you limit the amount you invested to the maximum amount that your state's insurance protection agency will cover if the insurer fails?
No I wouldn't, I'd buy from an insurer like TIAA, METLife or through Vanguard........

Quote:
3) Which insurer issued your policy?
A US state..
Quote:
4) Did you purchase a policy with inflation protection?
My state penson has a COLA, but I wouldn't purchase inflation protection on an SPIA as they are poor value for money

Quote:
5) If you did not purchase inflation protection, do you regret not having it?
N/A
Quote:
6) At what age did your annuity payments start?
55

Quote:
7) Do you regret purchasing your annuity and, if so, why?
No

I'm not sure if an SPIA is appropriate for you as you don't tell us anything about your finances, current AA or need for income. But I would not buy one with inflation protection, I would only buy a fixed annuity....no variables and I would not spend more than 20% on one.

Are you interested in current income or longevity insurance, if the latter think about a QLAC.
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Old 10-29-2015, 09:06 PM   #24
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I purchased a Deferred Income Annuity at age 51. My former megacorp was giving me an additional 35% in my pension account if I took a lump sum, so I decided to treat it like found money and took a portion of it and purchased a DIA

1) What percentage of your nest egg did you use to purchase your annuity? I used 20% of my total nest egg for the DIA. I am a big believer in the bucket strategy, DIA is just a bucket to me.

2) Did you limit the amount you invested to the maximum amount that your state's insurance protection agency will cover if the insurer fails? I went above the amount in PA (250K), but not by a huge amount.

3) Which insurer issued your policy? Mass Mutual had the best deal by a fair amount. Realize that the Fidelity site calculator typically calls out Mass Mutual for the numbers. I crunched numbers from a dozen insurance companies and worked deals with all through their rep networks on my own. At the end of the day, its a contract between an individual and a company, I want as few people in the middle as possible.

4) Did you purchase a policy with inflation protection? No, longevity does not run in my family and with a run rate of 13 or so years to the breakeven point, I decided to not go that way direction.

5) If you did not purchase inflation protection, do you regret not having it? No, I look at this as basic living expense money long term. It will be triple that to start with, but when my electric bill is $700 some day, I will still be OK. It is purely for paying basic bills for me, OpEx.

6) At what age did your annuity payments start? I purchased at 51, plan to start payments at 55. I am currently 52.5, my FIRE date is in 2 years. I plugged in all of the numbers into FIRE and even w/o inflation adjustment, all my scenarios were in the black so to speak.

7) Do you regret purchasing your annuity and, if so, why? I don't regret it. I feel that at 20% of my egg, it was a sensible choice that fit as both a replacement for my ballooned pension lump sum as well as a compliment to passive real estate investment income, IRA and brokerage account. Its interesting in that with the market relative flatness over the past 18 months, it has calmed my initial buyers remorse. I am only up 2-3% for 2015 to date (I am pretty conservative), so the ho hum returns made me feel OK with not being "all in". Also, other than a ladder strategy with CD's or bonds, this seemed to be a reasonable bucket. Lastly, I have a wife and I did choose 100% survivor income for her and 30 year period certain if we both kick for my kids. The annuitized monthly payment was negligible for those options.

Hope this helps with your decision. I know there are many nay sayers, but for us "lump summers", it seemed like a reasonable strategy. I analyzed the crap out of in my own unique OCD way for a few months before I pulled the trigger. My portfolio was up almost 15% in early 2014, so I decided to take that tailwind along with the extra incentive money and pull the trigger.

My 2 cents.
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Old 10-29-2015, 09:17 PM   #25
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FWIW, my situation is completely different but I do have 3 annuities with Vanguard and it was one of the best financial decisions I made. It sounds like you have done the research and I am sure that at some point after 55 you will be very happy with your decision.
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Old 10-29-2015, 09:57 PM   #26
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There are lots of negatives in SPIAs, but if you are retiring in your 60s and expecting low returns from bonds in the next 10 years, their rates of returns and the mortality credits actually start to look reasonable in comparison....as long as you live long enough.
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I'm still waiting for comments from Fidelity annuity holders!
Old 10-30-2015, 05:17 PM   #27
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I'm still waiting for comments from Fidelity annuity holders!

Hi,

Although I was hoping that individuals who own an annuity from Fidelity Investments will chime-in and let me know if it's reasonable to trust this firm, this hasn't happened yet! Maybe nobody on this board owns one?

I'm concerned about Fidelity Investments due to the way I'm being treated by my former employer's 401K plan, which is managed by this firm! This is why I'm inclined to take my money to Vanguard, unless there's a good reason for me to leave it with Fidelity!

In response to pb4uski, Vanguard issues annuities that are backed by six different insurance companies! I assume that each insurance company backs a specific type of annuity, but this is a guess on my part!

I'm counting-on the members of this board to help me make a decision that will fund a significant portion of my retirement!

Thanks!
John Swanson


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Old 10-30-2015, 05:19 PM   #28
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Actually, Vanguard uses one company for every state except New York. I forget their names...
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Old 10-30-2015, 05:36 PM   #29
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I own an annuity that I purchased through Fidelity. The annuity is not through any work related plan, I just bought it privately. They use several different insurance companies and my advisor does not work on a commission. Everything was clear and forthcoming.
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Old 10-30-2015, 05:52 PM   #30
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Fidelity is only the agent. You are buying from an insurance company. It really doesn't matter if you use Fidelity, Vanguard or someone like Immediateannuities.com
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Old 10-30-2015, 05:55 PM   #31
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Quote:
Originally Posted by JohnSwanson View Post


I've read that one of the problems with fixed SPIAs is that they provide too much income early in retirement and not enough as the retiree ages. One aspect of Fidelity's website that I like is that the annuity income calculator can provide a quote for an annuity with a 2% annual payment increase. I fed the initial payment amount into a Linux shell script that I wrote to calculate the annuity payments for 30 years. I learned that the fixed annuity pays 21% more the first year and beats the 2% annual increase annuity for 13 years. However, in the 30th year, the 2% annual increase annuity pays 40% more than the fixed annuity! Since I think that I'm going to beat the longevity odds, I'm planning on purchasing either a Fidelity, or Vanguard, SPIA that provides a fixed annual increase!....
Perhaps you should run the calculation for buying a fixed annuity in stages,
example take the extra 21% in the first year, invest it, do the same with the 2nd year, etc and at the end of the 13 years, purchase an extra fix annuity with all the "saved extra".
Compared to the straight line 2% increase annuity per year.
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Old 10-30-2015, 06:08 PM   #32
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It is my belief that immediateannuities.com factors in a 3% commission, and Vanguard only takes 2%. Check with these compantes for certainty.

Rich
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Old 10-30-2015, 08:42 PM   #33
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I worry that the OP will put too much into annuities. The question isn't whether SPIAs available through Fidelity are ok, it should be, "is an SPIA the right way to fund your retirement given your current asset allocation and income needs?"
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Old 10-30-2015, 10:14 PM   #34
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I worry that the OP will put too much into annuities. The question isn't whether SPIAs available through Fidelity are ok, it should be, "is an SPIA the right way to fund your retirement given your current asset allocation and income needs?"
I am too, but he specifically said he wasn't interested in what I have to say. So just like haha I'm not saying nothing else.
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Old 10-31-2015, 09:00 AM   #35
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5) If you did not purchase inflation protection, do you regret not having it?
This is a good question, but I would have added one more:

If you did not purchase inflation protection, and inflation had been running 3-4% a year for the last 5-7 years would you still be OK not having it?

I can't help thinking the answer to the OP's original question would changef we were not in such a low inflation environment for so long.
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Old 10-31-2015, 12:45 PM   #36
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Since you are purchasing the annuity from an insurance company I would be more concerned with the insurance company I'm buying the annuity from then the agent (Fidelity or Vanguard) selling it. It would be a good idea to check the rating of the insurance company you'll be buying from, if things go south (not likely) it will because of them. Also, once the annuity is purchased you'll deal directly with the insurance company, not Fidelity or Vanguard. Your annuity checks, statements, tax forms will come from the insurance company.
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I need to pull the trigger sooner than I thought!
Old 12-14-2015, 04:33 PM   #37
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I need to pull the trigger sooner than I thought!

Although I appreciate the concerns of those of you who believe that I'm making a serious mistake, this train is already rolling! Recently I read that Vanguard and Fidelity Investments are the only firms that sell immediate annuities that can be purchased with pretax money. Is this correct? If so, then this narrows the scope of my search!

Last week I discovered that I've been comparing the quotes of a Vanguard immediate annuity against a Fidelity Investments deferred annuity, which accounts for most of the higher yield of the Fidelity policy! However, the more important discovery is that, if I purchase a deferred annuity today that starts paying on 2/1/2018 (less than 2 weeks before I'm 60), the annuity pays dramatically more than an immediate annuity! There is no way that I'll come-out ahead by leaving my money in stocks and bonds! So my new plan is to perform a partial rollover of my 401K into an IRA and use the entire amount to purchase a deferred annuity with a 2% annual increase. I really like the 2% increase because there's no guarantee that Social Security will have an inflation-adjustment in the future! Obviously, I'm not using my entire nest egg to purchase an annuity, but I realize that it's too much to ask some of you to trust my judgement!

I requested a quote on Vanguard's Income Solutions website and, of the 5 insurers that Vanguard uses, only 3 (AIG, Principal Financial Group, and Symetra) were able to provide quotes. Of course, the AIG annuity yields the highest income! Since I remember the details of the AIG bailout, including the bonus scandal, I'd prefer not to do business with this firm! However, I read that the AIG insurance division was never in financial distress. Does this mean that I can trust AIG to provide a big chunk of my retirement income?

Fidelity Investments uses 5 insurers (Guardian, MassMutual, MetLife, New York Life, and The Principal) that I have no reason to distrust! I read that Fidelity's annuities are well-regarded, which means that I should forget about my past experiences with this firm while planning my financial future! It's not that I'm holding a grudge but, rather, I don't believe in doing the same thing, but expecting a different outcome!

In summary, an annuity from Vanguard, the low cost provider, under-performs an annuity from Fidelity Investments! I have the tools to run the numbers and it's surprising what $40/mo in additional income does when it's compounded by 2% annually! Unless there are more pretax annuity providers, I've narrowed-down my alternatives and I'm almost ready to pull the trigger!

All constructive responses are welcome!

John Swanson
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Old 12-14-2015, 05:00 PM   #38
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Are the deferred annuities also fixed? I would be interested to know what percentage of your net worth you are using to buy the annuity and how much of your income needs it will cover. I'm a fan of liability matching so think that a simple fixed annuity is a good thing to have in the asset mix.
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Old 12-14-2015, 06:07 PM   #39
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John... perhaps you should ask the mods if they can change your byline from "Confused about dryer sheets" to "Confused about annuities" Just kidding.

I highly doubt that Vanguard and Fidelity are the only brokers who will sell a SPIA to a pre-tax/tax-deferred account.

There are two reasons why a 3 year deferred annuity payout is higher than an immediate annuity... first, you are 3 years older so the insurer pays benefits for 3 less years and second, the insurer had been able to invest your premium for 3 years before they begin making payments to you.

For example, on immediateannuities.com a SPIA for a 57 yo male has a 5.70% payout rate, a SPIA for a 60 yo male has a 5.99% payout rate and a 3 year deferred annuity issued to a 57 yo male has a 6.73% payout rate. So of the 1.03% difference, .29% is due to your being 3 years older and .74% is what the insurer is paying you for getting you money 3 years earlier.

If you compare the payout rate for a SPIA at age 60 and a 3 year deferred annuity to a 57 year old you can essentially see the "interest" that the insurer is paying you over the 3 years. Based on payout rates it is about 4%... IOW 5.99% accrued at 4% for 3 years is about 6.73%..... pretty good but not stellar.

Regarding your enthusiasm that there is no way you will come out further ahead with stocks and bonds, I think you are wrong and am concerned that you might be confusing the payout rate with the rate of return. Let's say that at age 60 you buy a $100k SPIA that pays you $500/month (a 6% payout rate). 6% is NOT your rate of return. A portion of that $500/month is a return OF your $100k and the rest is a return ON your $100k. It is almost 17 years before you get $100k of benefits so if you die before you are 77 your return is zero or negative. If you have average mortality and live to 80 then you get benefits equal your $100k plus a 1.9% annual return. Live to 90 and your annual return is 4.4%. Live to 100 and your annual return is 5.3%.

AIG is a fine insurer... as you note the issue that they had had nothing to do with their insurance businesses which were sound and it was the sale of some of those healthy insurers that allowed AIG to payback the bailout plus interest. IMO, AIG is more comparable to The Principal, MetLife and MassMutual... with NYL and Guardian a step up from the others IMO.

As I tried to explain to you before... Vanguard and Fidelity are simply brokers making the sale and getting a commission in return. Most likely after the sale you would deal directly with the insurer.

Finally, if you are hell-bent on buying an annuity then your best bet is to defer taking SS until you are 70. You "pay" a monthly "premium" by forgoing the amount you would have received from 62 to 70 and then you get increased payments for life. For example, if your benefit would be $1,500 at 62 and $2,640 at 70 then if you defer you pay a total of $144,000 (forgo $1,500/month for 8 years) and at age 70 get an extra $1,140/month (a 9.5% payout rate for an inflation adjusted annuity... higher than the 7.7% payout rate for a 70 yo buying a fixed SPIA).
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Old 12-14-2015, 06:09 PM   #40
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Humm... how do you handle minimum required distributions if the annual payment is less than required if it is in a traditional IRA?
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