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11-24-2015, 04:35 PM
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#1
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Full time employment: Posting here.
Join Date: Apr 2011
Location: Castro Valley
Posts: 788
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Three Year Fixed Annuity
I am planning on depositing $80K in a 3 year CD for 1.75% per year. The CFP at the bank is promoting a 3 year Fixed Annuity at 1.95% per year. I looked through the documentation and there appears to be no fees of any kind. The CFP says there are no fees. It seems that the only real difference is the early withdrawal penalty which is much much higher than the CD.
Am I missing something? I though all annuities had fees. Does the Fixed Annuity make sense? I'm 99.9% sure I won't need the money in less than 3 years.
thanks
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11-24-2015, 04:40 PM
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#2
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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Does the annuity pay out throughout the three years or only at the end? Might be inconvenient to reinvest.
Both the CD and the annuity have "fees", you just don't see them. Without them you'd get a higher interest rate.
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11-24-2015, 04:42 PM
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#3
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Posts: 1,659
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What happens if you die within the 3 years?
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11-24-2015, 07:59 PM
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#4
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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: 36,201
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Quote:
Originally Posted by jkern
I am planning on depositing $80K in a 3 year CD for 1.75% per year. The CFP at the bank is promoting a 3 year Fixed Annuity at 1.95% per year. I looked through the documentation and there appears to be no fees of any kind. The CFP says there are no fees. It seems that the only real difference is the early withdrawal penalty which is much much higher than the CD.
Am I missing something? I though all annuities had fees. Does the Fixed Annuity make sense? I'm 99.9% sure I won't need the money in less than 3 years.
thanks
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Fixed annuities are similar to CDs. Any fees are built into the interest rate in that product. The annuities with various fees tend to be the variable annuity flavors. However, you don't get FDIC protection but the interest isn't taxed until you receive it (in the third year in your case assuming it is in a taxable account). Six of one or half dozen of another to me.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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11-24-2015, 08:30 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Fixed annuities do have fees and expenses, you juts don't see them and the insurer makes money off interest rate spread. Personally, I'd take the CD for the FDIC and if you can access the money by paying a penalty. Without the potential for mortality credits or fitting the annuity into a wider ladder strategy it doesn't seem worth the inflexibility....or marginal extra return.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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11-24-2015, 08:48 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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Who is the insurer? You are accepting credit risk of the insurer in return for an extra .2%. It had better be pretty solid for such paltry spread.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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11-25-2015, 04:18 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2005
Posts: 6,098
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Quote:
Originally Posted by RetireAge50
What happens if you die within the 3 years?
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these short term annuity's carry no mortality credits so they are no different than a cd from an insurer . your beneficiary's get the money .
these are different then life annuity's where those who die pay for those who live .
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11-25-2015, 10:08 AM
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#8
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Full time employment: Posting here.
Join Date: Apr 2011
Location: Castro Valley
Posts: 788
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Thanks for everyone's input. I was trying to understand this product.
* Not FDIC insured
* Severe surrender charges
* Pay tax at end of term vs. yearly
I don't think the trade offs are worth 0.2%
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11-26-2015, 10:05 AM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2004
Location: South Texas~29N/98W Just West of Woman Hollering Creek
Posts: 6,668
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Quote:
The CFP says there are no fees.
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Hmmm, I wonder how this charity that he is running pays for rent?
__________________
Part-Owner of Texas
Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx
In dire need of: faster horses, younger woman, older whiskey, more money.
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11-26-2015, 10:46 AM
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#10
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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: 36,201
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Easy, the insurer pays the bank a commission upon the sale and the CFP probably gets a piece of what the bank gets.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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