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Old 10-08-2013, 07:44 AM   #41
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A variable annuity is a tool. No intrinsic good or evil. Using a screwdriver as a chisel does not make the screwdriver bad, only the user when they hit it with a hammer.

In the right situation, annuities can be effective. 20 years ago, DW and I had maxed out in all of company sponsored plans and the like. I had 5% of our portfolio that I could invest for the long term. Taxes were a big issue. I considered Index Funds to have a minimal tax burden but decided against them. I can go into the reasons why, if you want. Instead I went with a Fidelity Variable Annuity. Low mortality charges. In retirement I will cash it out in one or two chunks and pay taxes at 15%. Since the original principal is after tax, only a portion of the distribution will count against OMAGI. I will not elect to take it out over the various life options. I believe that in the example I give, annuities were an effective tool.

I believe that the negatives are because annuities are like the screwdriver in that they are over used. Insurance products have high commissions. Most stocks have low commissions, so brokers began selling annuities when they could. Not when they should. So you are seeing a huge push back. I believe that in OP's case, a big issue to her is market risk. This is a strong selling point of annuities. On the other hand, many on this forum are not as concerned with market risk as they have invested for many, many years. They are more concerned with cutting costs and annuities have high costs - mortality charges, commissions, etc.
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Old 10-08-2013, 08:03 AM   #42
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Opinionated may mean well informed on a topic.
Interesting comment. We occasionally have a new poster come by and accuse us of 'group think'. Well, that may be true, or is it simply the combined experience of a bunch of people who have 'walked the walk'? It's not always easy to tell the difference, I think one needs to carefully study the reasons behind the near-consensus.


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I am not well informed about annuities .... so I have no advice or opinion, but I respect the very negative opinions of experienced people on this board. .... I just accept what experienced people here have said and related.
This probably illustrates my point - I suspect that you accept the other views, not just because they are common, but because they appear to be well reasoned. Even when I don't have a good understanding of a subject, I can usually tell if someone's comments are sound, or if they are merely trying to justify a position (or sell me something). There are usually a lot of tell-tale signs if you know how to read them.

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Old 10-08-2013, 09:37 AM   #43
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FWIW, I do recall that during the dark days following the crash of '08 the overall sentiment against VA's purchased before the crash on this board was not as harsh. A lot of people were hurting and most everybody was hit hard. The future looked less then bright. Times are good again.
I do not remember, as VAs were not on my radar at all. But you are right that we are more likely to feel cautious or even fearful after a big threat than when things look clear or at least have been clear for a while.

However, I think a sudden reminder that risk is real is an argument for more conservative allocations, not specifically for annuities of any stripe.

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Old 10-08-2013, 12:56 PM   #44
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Jerome Len thank you for your comments, I would agree there are some knowledgeable people contributing to this board, and I will keep researching here. Also, thank you for the charitable annuities idea, my husband and I were not aware and have now researched several. We too will be adding this to our investment mix, it is a win win for all.
Z3 dreamer I agree that variable annuities are a tool, one of many for investments, and based on each ones personal needs, an option. Thank you for mentioning the withdrawals in chunks, something for us to also consider. And yes market risk is playing into our investment choices, due to retiring in our early 50's, hopefully we have many years ahead, so we want some security with some of our investments, while risk in others is acceptable.
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Old 10-08-2013, 01:05 PM   #45
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Z3 dreamer I agree that variable annuities are a tool, one of many for investments, and based on each ones personal needs, an option. Thank you for mentioning the withdrawals in chunks, something for us to also consider. And yes market risk is playing into our investment choices, due to retiring in our early 50's, hopefully we have many years ahead, so we want some security with some of our investments, while risk in others is acceptable.
I am curious what risk do you think you are reducing by investing in a variable annuity? I can understand a regular annuity can reduce risk, but it seems to me that a variable is just as risky as investing in portfolio of stocks and bonds.
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Old 10-08-2013, 01:10 PM   #46
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Jerome Len thank you for your comments, I would agree there are some knowledgeable people contributing to this board, and I will keep researching here. Also, thank you for the charitable annuities idea, my husband and I were not aware and have now researched several. We too will be adding this to our investment mix, it is a win win for all.
Z3 dreamer I agree that variable annuities are a tool, one of many for investments, and based on each ones personal needs, an option. Thank you for mentioning the withdrawals in chunks, something for us to also consider. And yes market risk is playing into our investment choices, due to retiring in our early 50's, hopefully we have many years ahead, so we want some security with some of our investments, while risk in others is acceptable.

I am urious: how do you evaluate whether an insurer will be capable of making good on the guarantees they layer into variable annuities?
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Old 10-08-2013, 01:19 PM   #47
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I am urious: how do you evaluate whether an insurer will be capable of making good on the guarantees they layer into variable annuities?
1)Ratings such as AM Best, etc.

2)Size of the insurer

3)Percentage of annuity business versus core businesses

4)Historical claims paying ability

5)Ratio of expected claims versus dollars set aside to pay

6)As an example, at insurers like Nationwide and MetLife, variable annuities are a much smaller piece of the pie than at insurers like Jackson National.
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Old 10-08-2013, 02:24 PM   #48
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1)Ratings such as AM Best, etc.

2)Size of the insurer

3)Percentage of annuity business versus core businesses

4)Historical claims paying ability

5)Ratio of expected claims versus dollars set aside to pay

6)As an example, at insurers like Nationwide and MetLife, variable annuities are a much smaller piece of the pie than at insurers like Jackson National.

I was not asking you. I was asking our true believer.
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Old 10-08-2013, 02:24 PM   #49
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As brewer12345 points out, there are guarantees layered into variable annuities such as income stream for life and a death benefit of original investment, that are appealing.
And yes there is risk that the Annuity provider could fail, but in 2008 we saw several 'solid' companies fail....
As finance dude points out, we need to research and make the best personal choices we can, for our personal financial situations. Thank you finance dude for that list, it gives me a few more points to consider. Much appreciated.
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Old 10-09-2013, 12:34 AM   #50
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Originally Posted by Grammymissy
As brewer12345 points out, there are guarantees layered into variable annuities such as income stream for life and a death benefit of original investment, that are appealing.
And yes there is risk that the Annuity provider could fail, but in 2008 we saw several 'solid' companies fail....
As finance dude points out, we need to research and make the best personal choices we can, for our personal financial situations. Thank you finance dude for that list, it gives me a few more points to consider. Much appreciated.
Which solid insurance companies failed in 2008? None of note that recall. And don't mention AIG
because it is well established that the problem there was not the regulated insurance companies.
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Old 10-09-2013, 03:50 AM   #51
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From 1994 through 2008 there were a dozen interstate annuity carriers that received cash from state guaranty funds. Every state guaranty fund covered at least $100,000 of cash value and there were only three failed carriers that did not provide all of the account value for all of their customers.

i believe the ones that didn't pay off everything were london pacific life and golden state mutual but i can't remember the 3rd.
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Old 10-09-2013, 07:35 AM   #52
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As brewer12345 points out, there are guarantees layered into variable annuities such as income stream for life and a death benefit of original investment, that are appealing.
And yes there is risk that the Annuity provider could fail, but in 2008 we saw several 'solid' companies fail....
As finance dude points out, we need to research and make the best personal choices we can, for our personal financial situations. Thank you finance dude for that list, it gives me a few more points to consider. Much appreciated.
GM earlier on you mentioned that you have a pension and SS, so I'm curious why you are so focused on the guaranteed income stream of the variable annuity as you already have a couple of fixed income sources that are more reliable.

If the guarantee of income in later life is the most important thing to you look into a single premium immediate annuity or a deferred income annuity. Those are products that are a lot more transparent than a variable annuity, will actually produced a fixed income, and you will probably get a slightly more positive response from the board.
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Old 10-09-2013, 07:42 AM   #53
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From 1994 through 2008 there were a dozen interstate annuity carriers that received cash from state guaranty funds. Every state guaranty fund covered at least $100,000 of cash value and there were only three failed carriers that did not provide all of the account value for all of their customers.

i believe the ones that didn't pay off everything were london pacific life and golden state mutual but i can't remember the 3rd.
Interesting info. Where did you get it?

My point was that insurance failures were modest during the recent financial crisis. The banks - a whole different story.
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Old 10-09-2013, 07:58 AM   #54
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It has been know for years. I guess there must be info on them on line.
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Old 10-09-2013, 08:01 AM   #55
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Old 10-09-2013, 09:54 AM   #56
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It has been know for years. I guess there must be info on them on line.
And maybe not. I know someone whose father owned an annuity in a company that failed somewhere in the 1990s. He described how long and painful the process was to get the annuity restarted via the state guarantee fund. He eventually got his annuity restarted.

Way back when it was listed on the list of failures and I had an article on two people indicted for things that caused the failure. Now I can't find anything on it. The company's old name is now back in use and any search makes it look like the company has never had a problem.

Here's a list of failures since 2008. It's not always obvious which ones involve which insurance products.

Weiss Ratings

Failures do happen. Ratings of companies can go from great to insolvent over a decade or more.
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Old 10-09-2013, 11:15 AM   #57
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Which solid insurance companies failed in 2008? None of note that recall. And don't mention AIG
because it is well established that the problem there was not the regulated insurance companies.
Insurers do not have to default to reduce the value of the guarantee. I would not be real happy to be counting on a Hartford annuity guarantee at themoment.
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Old 10-09-2013, 04:05 PM   #58
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Nun, currently the only income stream is the pension, since I am 51 and husband is 56, husband wants to take his ss at 62, while I am waiting to 67 is current plan. Obtaining another income stream to kick in when my husband is 65 or so is what we are considering. We would love to fund our retirement with streams and not have to worry about our other investments until needed. Since we are planning to travel extensively, having that money feeding the travel account regularly would lighten the load of worries. We also like the return of premium death benefit, that will assist the surviving spouse with getting settled in alone, help pay for assistance as needed.
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Old 10-09-2013, 05:22 PM   #59
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Nun, currently the only income stream is the pension, since I am 51 and husband is 56, husband wants to take his ss at 62, while I am waiting to 67 is current plan. Obtaining another income stream to kick in when my husband is 65 or so is what we are considering. We would love to fund our retirement with streams and not have to worry about our other investments until needed. Since we are planning to travel extensively, having that money feeding the travel account regularly would lighten the load of worries. We also like the return of premium death benefit, that will assist the surviving spouse with getting settled in alone, help pay for assistance as needed.
Then a variable annuity (VA) doesn't seem ideal. Most people on here would advise you to invest the money in an appropriate asset allocation and take your income stream from that, but I can see that you want some "insurance". Therefore, I'd either buy a deferred income annuity (DIA) with whatever survivor benefit you want and have it start paying out when your husband is 65 or just wait until then and buy a single premium immediate annuity (SPIA). Linking your income stream to the performance of the stock market doesn't seem to be what you want and any potential returns will be drastically reduced by fees and expenses.

The folks on here know what they are talking about so avoid the variable annuity because you basically give a high fraction of your returns to the insurance company in fees. If you truly want stable income look at DIAs and SPIAs.
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Old 10-09-2013, 06:30 PM   #60
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Nun, thank you for your response and your taking the time to explain some options for us. I will take some time and research the options you have noted. Much appreciated!
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