Those of you who are familiar with my normal comments on annuities may have been surprised by this new thread. Well, nothing has changed but I recently read a pair of articles by Ty Bernicke (see links) that made me want to make me throw up. Ol' Ty has shown that given the right makeup that barnyard pig can be pretty enough to take to the senior prom.
FPA Journal - Variable Annuities: From Controversial to Mainstream Using a Two-Bucket Strategy, Part 1
FPA Journal - Variable Annuities: From Controversial to Mainstream Using a Two-Bucket Strategy, Part 2
My specific criticism is based on his assumptions. An individual "doing it with mutual funds" pays fees of 1.20% on stock mutual funds and 0.9% on bonds. I hope no one on this forum has fees anywhere near those. The VA also has total fees of 2.5% which is far lower than I have seen although things may have changed recently. The VA has a guaranteed payment of 5% of the original purchase price (5% of 80%). The other 20% goes into a "flex" portfolio that is meant to supplement withdrawls when the VA doesn't generate enough extra income. He also compares a 40% bond/60% self-managed portfolio against a 92% equities VA/"flex" portfolio.
Even with this equity advantage, he has to jiggle the results to make them look good. The bottom line "advantage" comes down to the continued "guaranteed" annuity payments no matter what. Although after a few decades, the non-COLA'd payment is probably pretty meager. If this "guarantee" is important, someone could still buy an immediate fixed annuity with a much lower fee although I don't like these either.
Feel free to read these articles if only to educate yourself against the next wave of "research" that "proves" variable annuities are the way to go.
FPA Journal - Variable Annuities: From Controversial to Mainstream Using a Two-Bucket Strategy, Part 1
FPA Journal - Variable Annuities: From Controversial to Mainstream Using a Two-Bucket Strategy, Part 2
My specific criticism is based on his assumptions. An individual "doing it with mutual funds" pays fees of 1.20% on stock mutual funds and 0.9% on bonds. I hope no one on this forum has fees anywhere near those. The VA also has total fees of 2.5% which is far lower than I have seen although things may have changed recently. The VA has a guaranteed payment of 5% of the original purchase price (5% of 80%). The other 20% goes into a "flex" portfolio that is meant to supplement withdrawls when the VA doesn't generate enough extra income. He also compares a 40% bond/60% self-managed portfolio against a 92% equities VA/"flex" portfolio.
Even with this equity advantage, he has to jiggle the results to make them look good. The bottom line "advantage" comes down to the continued "guaranteed" annuity payments no matter what. Although after a few decades, the non-COLA'd payment is probably pretty meager. If this "guarantee" is important, someone could still buy an immediate fixed annuity with a much lower fee although I don't like these either.
Feel free to read these articles if only to educate yourself against the next wave of "research" that "proves" variable annuities are the way to go.
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