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Seriously Thinking "Fixed" Annuity to Replace Some CDs
05-18-2018, 05:33 AM
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#1
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2003
Location: Florida's First Coast
Posts: 7,654
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Seriously Thinking "Fixed" Annuity to Replace Some CDs
I know "An*#$ties" are bad words in some circles, and many ARE. But I am looking for CD replacements for Non-qualified Moneys in December when my 3% PenFed CDS run out.
Enter the "Fixed" annuity. Currently Returning 3.7% for 5 Years (A+ Rated Co. Including any fees which are low), No penalty 10% Withdrawals per Annum, deferred interest, and the Big one; Guaranteed up to $250k per contract in the state of Florida. An added benefit they are protected from unscrupulous grabbing Lawyers hands (In Florida).
Thoughts. Thinking of putting about $500k in 2 contracts when the time comes.
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05-18-2018, 05:47 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
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You could probably do worse. While I think the credit risk of a A+ rated company is low, particularly after considering guaranty funds, it is a smidgeon higher than FDIC insured CDs. One disadvantage is that unless in a tax-deferred account that the income becomes a slug of taxable income in the year it is withdrawn, but I guess that you could manage that by taking the interest out each year via the 10% free withdrawal provision. Downside is that if you need that money that surrender fees will likely be much higher than CD early withdrawal penalties.
5 year brokered CDs are currently paying ~3.2%. High quality corporate bonds pay the same 3.7% (like BSCN, which has a yield to worst of 3.71%) so I would probably stick with those and accept the smidgen higher credit risk as a tradeoff for better liquidity.
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05-18-2018, 05:59 AM
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#3
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Recycles dryer sheets
Join Date: Feb 2015
Posts: 296
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I would be careful. This sounds like an indexed annuity with the returns pegged to an index like the S&P 500 for example. Where you can never "lose" money if the market drops, but your upside is capped.
Also, I am sure the "3.7% return" includes an annual return of principal. The fees associated with these insurance products, which is what they are...insurance products...not investments....are well hidden and add up fast.
The up front commissions, surrender charges, etc. make them too expensive and restrictive in my book. Good luck whatever you decide.
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05-18-2018, 06:15 AM
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#4
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Thinks s/he gets paid by the post
Join Date: Dec 2016
Posts: 1,290
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BEFORE you purchase any annuity ask the annuity company what the annual fees are including sub account fees, M&E expenses, any riders. Also ask if there are surrender penalties
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05-18-2018, 07:07 AM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2003
Location: Florida's First Coast
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It is NOT Indexed. Research Fixed Annuities and you will see. Also fees are low for these and are included, returns are actual.
Remember these are NOT your traditional Annuities. These are more commonly sold by Fiduciaries. Never buy from a regular insurance agent. Again, do the research, like anything else.
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05-18-2018, 07:18 AM
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#6
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Full time employment: Posting here.
Join Date: Jan 2008
Location: Flyover America
Posts: 679
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I am assuming you are referring to Multi Year Guaranteed Annuity MYGA which works the same as a CD. Where you put money in and at the end of the term 3yr/4yr etc... it pays the interest. The difference is that the interest is tax deferred until the MYGA matures.
Most MYGAs allow interest to be distributed of course you will pay tax just like a CD, not all also allow premium to be distributed so would confirm that.
I think MYGAs from an A+ company are a good alternative for fixed income and I have also been investigating them, but I would do a ladder just like a CD (i.e. 3yr/4yr/5yr) incase interest rates increase significantly.
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05-18-2018, 07:21 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Quote:
Originally Posted by capjak
I am assuming you are referring to Multi Year Guaranteed Annuity MYGA which works the same as a CD. Where you put money in and at the end of the term 3yr/4yr etc... it pays the interest. The difference is that the interest is tax deferred until the MYGA matures.
Most MYGAs allow interest to be distributed of course you will pay tax just like a CD, not all also allow premium to be distributed so would confirm that.
I think MYGAs from an A+ company are a good alternative for fixed income and I have also been investigating them, but I would do a ladder just like a CD (i.e. 3yr/4yr/5yr) incase interest rates increase significantly.
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Yes Exactly. More flexible than a CD really because of the 10% Per Year withdrawal clause, and in Florida that $250k insolvency insurance is nice.
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05-18-2018, 07:23 AM
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#8
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Full time employment: Posting here.
Join Date: Jan 2008
Location: Flyover America
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Quote:
Enter the "Fixed" annuity. Currently Returning 3.7% for 5 Years (A+ Rated Co.
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I would be interested in where you found 3.7% from an A+ rated company as I have not seen one that high for A+ rated.
Fixed Rate Annuities (MYGAs) | Stan The Annuity Man®
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05-18-2018, 07:28 AM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Quote:
Originally Posted by capjak
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I called an independent Fiduciary I know locally. I do not need them till December so I did not check the company out exactly.
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05-18-2018, 07:39 AM
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#10
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Thinks s/he gets paid by the post
Join Date: Jul 2011
Location: The Bay Area
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I’d ask yourself why (if?) it’s worth the additional ~0.5% to you to give up the liquidity. Does an extra $2.5k/yr really make that much difference?
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You may be whatever you resolve to be.
100% x 10% > 10% x 100%
Small pensions & SS cover essentials
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05-18-2018, 07:50 AM
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#12
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Join Date: Jan 2008
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Quote:
Originally Posted by Huston55
I’d ask yourself why (if) it’s worth the additional ~0.5% to you to give up the liquidity. Does an extra $2.5k/yr really make that much difference?
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I would think so, but I am not sure the spread is really that much for what I have been seeing, but if it is than yes that is significant, plus some control of taxes,
at 0.5% and rolled over to a new MYGA after 5 years...
$12,600 compounded 5 years
$25,000 10 years
$38,000 15 years
$52,000 20 years
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05-18-2018, 07:52 AM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Plus protection from Litigation in Florida. B++ is OK too.
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05-18-2018, 07:57 AM
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#14
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Full time employment: Posting here.
Join Date: Jan 2008
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Quote:
Originally Posted by Huston55
I’d ask yourself why (if?) it’s worth the additional ~0.5% to you to give up the liquidity.
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For Liquidity the $500,000 with several of the companies that supply MYGAs allow 10% a year withdrawal free if >59.5 YO otherwise may have 10% IRS penalty. So after the first year for a 59.5 YO, $50,000 dollars per year.
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05-18-2018, 08:27 AM
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#15
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Thinks s/he gets paid by the post
Join Date: Jul 2011
Location: The Bay Area
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I guess I’m still not sold; at least for our situation.
Quote:
Originally Posted by capjak
I would think so, but I am not sure the spread is really that much for what I have been seeing, but if it is than yes that is significant, plus some control of taxes,
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If it’s a bit more return each year you seek, adjust your AA & retain control over your assets.
Quote:
Originally Posted by ShokWaveRider
Plus protection from Litigation in Florida. B++ is OK too.
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OK, I see the value in this. But, are you really worried about litigation? Is that what’s motivating you?
Quote:
Originally Posted by capjak
For Liquidity the $500,000 with several of the companies that supply MYGAs allow 10% a year withdrawal free if >59.5 YO otherwise may have 10% IRS penalty. So after the first year for a 59.5 YO, $50,000 dollars per year.
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Yep, access to 10% annually is good but, not as good as access to 100%. You do give up substantial liquidity; no way around that.
I went to the ‘StanTheAnnuityMan’ link (thanks capjak), and he lists four reasons for buying annuities.
P (Principal Protection): other than litigation protection, I don’t see any added PP value over CDs.
I (Income for Life): MYGAs are for a fixed time so, you don’t get this.
L (Legacy): You’re not buying that type of annuity so, no advantage over CDs & not as good as life insurance.
L (Long Term Care): You’re not buying that type of annuity so, no advantage over CDs; and Stan recommends LTCi if you can qualify.
So, in the end, it seems you’re just chasing a bit of extra return (aren’t we all), and considering giving up substantial control (liquidity) to get it. I just can’t get there but, that’s just me for our situation.
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You may be whatever you resolve to be.
100% x 10% > 10% x 100%
Small pensions & SS cover essentials
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05-18-2018, 08:32 AM
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#16
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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These can be concerted to lifetime income annuities with no loss of principle when you Kark it (Except what you take out over the interest earnt), and Tax Deferral till DW gets on Medicare (to qualify for max ACA subsidy).
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05-18-2018, 08:37 AM
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#17
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Quote:
Originally Posted by ShokWaveRider
Plus protection from Litigation in Florida. B++ is OK too.
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This seems to be very important to you for whatever reason. And, if you believe there is a good chance that some litigation will be used to take your money from you, well... I can't argue with you. You know your situation far better than any of us do.
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Comparison is the thief of joy
The worst decisions are usually made in times of anger and impatience.
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05-18-2018, 08:42 AM
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#18
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Quote:
Originally Posted by Chuckanut
This seems to be very important to you for whatever reason. And, if you believe there is a good chance that some litigation will be used to take your money from you, well... I can't argue with you. You know your situation far better than any of us do.
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Not really, we have an umbrella policy. It is just an added benefit in Florida.
Tax deferral is probably more important right now.
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05-18-2018, 09:28 AM
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#19
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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I've been watching these also and consider them to be a viable component for fixed allocation. Specifically, the MYGA variety, but also the Secondary Market (fixed) Annuity options look reasonable. I was not brave enough to bring up the subject on this forum because the decent products get lumped in with the predatory stuff.
Now that CD rates are rising, my focus is shifting toward 2-3 year FDIC products.
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