Questions for lifetime annuity holders!

[nun]

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.

 

[ethernow]

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

 

[Kimo]

Actually, Vanguard uses one company for every state except New York. I forget their names...

 

[hurricane harry]

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.

 

[Gill]

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
Bruce



Sent from my iPad using Early Retirement Forum

 

[Sunset]

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.

 

[Richard4444]

It is my belief that immediateannuities.com factors in a 3% commission, and Vanguard only takes 2%. Check with these compantes for certainty.

Rich

 

[nun]

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?"

 

[MRG]

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.

 

[Chuckanut]

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.

 

[zinger1457]

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.

 

[ethernow]

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

 

[nun]

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.

 

[pb4uski]

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).

 

[Brat]

Humm... how do you handle minimum required distributions if the annual payment is less than required if it is in a traditional IRA?

 

[pb4uski]

If you own a life contingent SPIA in an IRA the SPIA isn't subject to RMDs... the other funds are.

 

[Souschef]

You really have to read the fine print on these annuities. My wife was going to roll one over for another 10 years, and they offered her a 9% bonus. In the fine print, it said that the service charge was going to be greater. I ran it through a spreadsheet, and at year 7 she would start to be in the hole.
I showed it to the salesman, and he said he never considered that

 

[zinger1457]

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!

That's certainly not true. As was mentioned it's worth checking out sites like immediateannuities.com and see what they have to offer. They will provide you a quote for several different insurance companies.

While it's wise to be concerned with what insurance company you deal with each state does have a guaranty fund if an insurance company goes belly up. The limit of coverage differs from state to state so if you have a large sum of money you plan to use to purchase an annuity it might be worthwhile looking at spreading it out among different insurance companies so that no one annuity is more than what is covered by your state guaranty fund.

 

[nun]

You really have to read the fine print on these annuities. My wife was going to roll one over for another 10 years, and they offered her a 9% bonus. In the fine print, it said that the service charge was going to be greater. I ran it through a spreadsheet, and at year 7 she would start to be in the hole.
I showed it to the salesman, and he said he never considered that

With annuities it's important to stick with simple fixed products like an SPIA or a QLAC. When you start combining investments with annuities things get complicated and expensive. If you want investment growth then equities are the way to go, annuities are insurance.

 

[pb4uski]

+1 the more complexity the more avenues the insurer has to take advantage of you. SPIAs are about as simple as you can get... you pay $x and they pay $y/month for a certain period of for life.

 

[hurricane harry]

I purchased my MetLife annuity through fidelity. All correspondence goes through MetLife, fidelity was just my broker because I have other accounts through them. I have since added more funds to this annuity and changed beneficiaries. MetLife was easy to deal with and their website is pretty straightforward. I will not draw funds until 2018 so I can't help you there.
I too have a pension where I work and I can tell you the peace of mind knowing you'll have two or three paychecks for life is pretty comforting.

 

[Chuckanut]

I too have a pension where I work and I can tell you the peace of mind knowing you'll have two or three paychecks for life is pretty comforting.

+1

There is something to be said for that, over and above the pure economics of the situation. Some people do not function well under a great deal of uncertainty, others thrive on it.

 

[ethernow]

An Integrity Companies annuity from Vanguard looks promising!

Today I realized that the Vanguard annuity quote is for an annuity that starts a few days before I'm 60, but the Fidelity annuity quote is for an annuity that starts at age 60. Since the annuity quotes on Vanguard's website are for annuities that start paying on the first of the month, I requested another quote for an annuity that starts paying on the first of the month that follows my birthday.

This new Vanguard quote includes a quote from the Integrity Companies, which was one of the companies that was unable to provide me a quote for an annuity that starts when I'm age 59. This quote has the highest initial payment of the 4 companies included in the quote AND it's $41/mo higher than the Fidelity Investments quote! I like the fact that an annuity that I can buy from Vanguard is the highest-performing policy and that it's not from AIG!

Now I have a reason to stick with Vanguard! Does anybody have an opinion of the Integrity Companies?

John Swanson

 

[pb4uski]

I think that you're probably referring to Integrity Life, which is a Western & Southern subsidiary. If so, they are a solid player.

https://www.westernsouthern.com/industry.asp

 

[elisap]

My god is this complicated.