Return on deferred annuity I bought 22 years ago

[nun]

Twenty two years ago I contributed to TIAA-Traditional and a TIAA deferred annuity. I was looking at the balances recently, and as I've made no more contributions to them, it was easy to back out the average annual return over the twenty two years. It came out to be 6.1%, not stellar, but certainly a number that I'm glad to have in my portfolio along with the highly variable average returns of my equity and bond investments.

 

[pb4uski]

I bought a whole life policy when I was 22 (before I knew better) but it has worked out well in that my average annual return over 35 years has been 5.2% (IRR of premiums and CSV) plus I have had mortality coverage over that period "for free".

While I don't advocate whole life as an investment, if you need life insurance for a long period of time, it isn't a bad way to go.

 

[Bikerdude]

I bought a whole life policy when I was 22 (before I knew better) but it has worked out well in that my average annual return over 35 years has been 5.2% (IRR of premiums and CSV) plus I have had mortality coverage over that period "for free".

While I don't advocate whole life as an investment, if you need life insurance for a long period of time, it isn't a bad way to go.

Just for comparison, 10K invested in 1977 in the S&P500 with dividends reinvested would total $549.177 (11.5% annual return). The WL policy with 5.2% return for 35 yrs. equals $61,476.

 

[pb4uski]

Good point, but a BTID would be a better comparison or a comparison to bonds would be better in that the risk of a whole life policy is more similar to a bond than to stocks 9and the underlying assets are predominantly bonds).

While I concede that the whole life probably lags BTID or even bonds, my only point is that it isn't as awful as some people think.

 

[nun]

Just for comparison, 10K invested in 1977 in the S&P500 with dividends reinvested would total $549.177 (11.5% annual return). The WL policy with 5.2% return for 35 yrs. equals $61,476.

I bet the comparison isn't as good if you do the calculation from 1991 to today and from 2000 to today it would stink. But that's not really the point. I just thought it interesting to point out that an annuity type product can be a useful part of a retirement plan from the start.

 

[Bikerdude]

I bet the comparison isn't as good if you do the calculation from 1991 to today and from 2000 to today it would stink. But that's not really the point. I just thought it interesting to point out that an annuity type product can be a useful part of a retirement plan from the start.

I agree as part of portfolio diversification. BTW the S&P returned 8.896% per year if invested in 1990.

 

[nun]

I agree as part of portfolio diversification. BTW the S&P returned 8.896% per year if invested in 1990.

....and I think if you look at 2000 to 2012 the S&P averages 2% annual return. After this poor decade of S&P500 performance, more "professional" advisors and prognosticators are starting to consider SPIAs for retirement income, but they aren't yet considering them as part of a portfolio in the accumulation phase. They still push the anticipated larger gains in equities and the time to recover from any market down turns. Sure, it's probably a good idea to be playing in that sandbox, but why not take out some insurance against a decade like the last one and contribute to a deferred annuity early on, just make sure the fees are not excessive. There's a large percentage of baby boomers with terrible 401k returns that would probably be glad of 6.1% annual returns over the last 20 years.

 

[hlfo718]

I don't buy comparing only bonds to WL makes sense since is your choice where the money is allocated and if you are seriously investing for long term such as retirement, wouldn't you have a balanced portfolio in a 401k, IRA, and or regular account?

For the last 22 years or so, Vanguard Wellesley returned about 10% a year while Vanguard Wellington returned about 10.25%. Wellesley has about 40% in stocks vs 60% for Wellington.

If the excuse to buy WL is because I'm too lazy to invest the diff, wouldn't I be too lazy to continue paying WL premium since being too lazy means I can't set up a recurring investment program with Fidelity or Vanguard.

My opinion is WL is SOLD mostly for uneducated investors. While it may serve a purpose for some high net worth for estate planning, most people who buy don't have millions to pass on to their heirs.

 

[obgyn65]

Thanks for sharing. This is the type of post that encourages me to continue my strategy of buying some deferred annuities until I reach 62. I guess I will switch to SPIAs when I am in my 70s or 80s.

Twenty two years ago I contributed to TIAA-Traditional and a TIAA deferred annuity. I was looking at the balances recently, and as I've made no more contributions to them, it was easy to back out the average annual return over the twenty two years. It came out to be 6.1%, not stellar, but certainly a number that I'm glad to have in my portfolio along with the highly variable average returns of my equity and bond investments.