Annuity vs 4% rule

[lazysundays]

Ummm thanks. I will read that

 

[Chuckanut]

I didn't even know age mattered.

If you don't understand why age matters that is a huge warning sign. Annuities are tied to age big time. Please educate yourself before spending any money or signing anything.

Sometimes we literally don't know what we don't know.


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[lazysundays]

I'm just asking. I have 176k in SLs to pay off in 2023, mortgage by 2027 and 2.4 mill to save by age 65 around 2045. That is all from the allotted snowball $ turned to retirement savings. 4% rule sounds fine. Had no idea annuities existed.

Edit- I'm here to see if I can speed that plan up a bit.

 

[Chuckanut]

Edit- I'm here to see if I can speed that plan up a bit.

A noble goal!


Sent from somewhere in the world with whatever device I can get my hands on.

 

[haha]

Lazy. I am not a fan of annuities but you need to do a lot of reading before you take one or reject the concept entirely.

I'm not sure why. Most of us younger than 60 have little memory of severe or lasting high inflation, so we do not fear it like older people. But this is just demographics, and attitudes based on recency bias.

Whatever has kept inflation at bay for so long, in spite of high government stimulus, is not guaranteed forever, or for our lifetimes.

Buying an annuity is a risk we really do not have to take. Just because our experience and recent memory gives us no visceral fear of this risk does not mean it is not there.

This is not a prediction of the immanent return of inflation. I would doubt that; but it is a big leap of faith in the far future that I can see no reason to take.

IMO, many times categorically rejecting something because you don't like the concept makes very good sense.

There are many things I will not bother to read about or entertain because they have an Achilles heel that is obvious on a brief look.

Ha

 

[Sesq]

The first "annuity" you should buy is to defer taking social security until age 70 as it has a lot of features like COLAs, spousal benefits, and post FRA (full retirement age) roughly an 8% return. It is subject to policy risks, but once you hit FRA, the risks will probably be shouldered by the next generation.

After that, if you are willing to give up control and face inflation then annuities are another arrow in the quiver for providing retirement income.

 

[Tractor guy]

Mel Lindauer wrote an excellent series on annuities for Forbes a while back. You can still find it on the web here: Annuities: Good, Bad Or Ugly? - Forbes

I've read a lot of his articles and have always found them to be knowledgeable and well written.

Lorne

 

[REWahoo]

Mel Lindauer wrote an excellent series on annuities for Forbes a while back. You can still find it on the web here: Annuities: Good, Bad Or Ugly? - Forbes

The above link is to Lindauer's first Forbes article in a series of six on annuities. Here are links to the others:

2. How To Cut The Cost Of A Variable Annuity - Forbes
3. Variable Annuities Don't Belong In Retirement Plans - Forbes
4. Fixed Deferred Annuities: CDs With Gotchas - Forbes
5. For Some Retirees, This Annuity Makes Sense - Forbes
6. The Truth About Equity-Indexed Annuities - Forbes

One of the best sources out there on the many pitfalls and limited advantages of annuity products.

 

[LongPrime]

Newer annuities with guaranteed income withdrawal feature allow annuitant to make guaranteed withdrawals for life without annuitization. Our VA has a 5% guarantee based on the income account which steps up at 5% per year for 10 years or first withdrawal and resets when account value (real value) exceeds the income value. We got 5 more years with the 5% guaranteed where upon, it remains fixed or until the acct value exceeds the income acct. Or we take partial withdrawal or close the account.

Our Fixed-Index annuities has the same 5% guaranteed step-ups in the accumulation phase and a deemphasis on the actual account. BUT the backend, if held for 5 years and age 70, the return is 6.5% for life, no annuitization is required.

These are complicated products but worth the look see. Annuity plans change as insurance/annuity companies reevaluate their risks. Annuities can be an important part of your portfolio.

 

[LongPrime]

I discovered that annuity company will offer different annuities to different marketing companies.

We laddered our annuities by amounts which means we can chose which annuity to call for the income withdrawal by time and optimization. The VAs did 24-27% net, in 2013 fiscal annuity year, expenses ~2%. Would have been 2-4% more but I reallocated to cash to protect gains in the last two months.

 

[LongPrime]

Rewahoo- just looked up historical inflation rates. Like I thought- it's all over the place from 1%, 5% 22%! Yikes. Even a 4% inflation on year 2 of retirement leaves the annuity without enough buying power for the year.

And that is the answer I was looking for. Thanks peeps

I mention in the above post that we are laddered in our annuities, not by our choice but by the annuity companiy's policy. Our intention was to consolidate the various MF accounts into a single rollover account. We filed the annuity application and was setup awaiting for funding. We received the checks made out to me/wife and the annuity company. The first check was immediately sent out to annuity co. The second check came we endorsed and sent to annuity for their endorsement. But the annuity co. said that they would like us to set up another annuity because the first deposit was already hedged and adding to this account screwed up their hedging, their words. So, over two months we set up 4 VA accounts this company, no two with the exactly the same portfolio selection, but all strongly growth slanted and very little bonds.

My suggestions: 1) understand the product thoroughly whether be a MF, stock, bond, CD, 529, annuity, SS, pension; 2) Different companies offer different products ; 3) A company will offer different annuities. Annuities is an open end obligation to the insurance company and consequently it is hedged and amount of annuities is sold is limited to the risk they want to assume. 4) Fidelity, Vanguard, TDAmeritrade, Primerica, Waddell & Reed, et all are marketing companies that have their annuities designed and underwritten by annuity companies and from what I have seen they are sligjhtly better than the products directly offered by the annuity companies; 5) Attend some presentations. I must have attended at least 10 from my favorite plan and another 20 from competing plans. I am starting another cycle because we will be inheriting some money and annuities is just one investment option.

 

[LongPrime]

BTW: Our current VA annuities have a 5% rule, exercisable at anytime; and if the 5% doesn't deplete the actual account value, the remainder goes to heir. And if the 5% depletes the actual account, the annuity company takes the risk

Our Fixed index Annuity has a 6.5% rule. for us optimally to be excerised at 70 and held for 5 years.

 

[Wu_wu]

I just plugged in the information on a couple aged 65 putting in $400,000 and annuitizing at age 70. They received $2556.19/m for their entire life guaranteed. If they live to 100, that's $950,903 in benefits! That's not including X years certain, where if both annuitants die, the beneficiaries receive the remaining amount left for x years which could be as high as $710,000.

 

[brewer12345]

I just plugged in the information on a couple aged 65 putting in $400,000 and annuitizing at age 70. They received $2556.19/m for their entire life guaranteed. If they live to 100, that's $950,903 in benefits! That's not including X years certain, where if both annuitants die, the beneficiaries receive the remaining amount left for x years which could be as high as $710,000.

So are you on a really good commission plan?

 

[travelover]

So are you on a really good commission plan?

One look at the previous posts answers that.

 

[Chuckanut]

I just plugged in the information on a couple aged 65 putting in $400,000 and annuitizing at age 70. They received $2556.19/m for their entire life guaranteed. If they live to 100, that's $950,903 in benefits! That's not including X years certain, where if both annuitants die, the beneficiaries receive the remaining amount left for x years which could be as high as $710,000.

Ummm.... If they can average 6% a year, they should be able to do better than that over 30 years. Personally, I think that averaging 6% a year is far more likely than one or both living to 100. My 2 cents.

That's not to say I am anti annuity. This theoretical couple may have other reasons for buying an annuity. They must do what works for them.

 

[Wu_wu]

So are you on a really good commission plan?

One look at the previous posts answers that.

Haha, I am on commission yes. No one I know works for free, but that's besides the point. I am on this forum to learn and offer insight, experience and tools on what is available to me. If it came off as sales-y I apologize, it was more of seeing why the numbers were lower.

Ummm.... If they can average 6% a year, they should be able to do better than that over 30 years. Personally, I think that averaging 6% a year is far more likely than one or both living to 100. My 2 cents.

That's not to say I am anti annuity. This theoretical couple may have other reasons for buying an annuity. They must do what works for them.

They most definitely could I'm sure, as the annuity I mentioned wasn't a part of the market, as it's a Guarantee Income Annuity, which I only brought up because OP was talking about annuities.

The only reason I think the type of annuity mentioned has merit, is because of the stock market drop in 2000 and 2008, which, if you were retiring during that time, your investments would've seen a scary dive like a few of my clients saw. Some people just don't have high risk tolerances. One retired client saw her retirement fund drop from $1m to $500,000 during those times and pulled out of the market and started working again to make up for the loss of income.

But I digress, most investors in here seem to have a very good grasp on securities that perform well for them, which I have little knowledge on and am still learning.

 

[Chuckanut]

Some people just don't have high risk tolerances. One retired client saw her retirement fund drop from $1m to $500,000 during those times and pulled out of the market and started working again to make up for the loss of income.

Yes, this is the kind of person who may be better off with an annuity than an investment whose value may vary. It's a bit sad really. Had this person waited she would be well ahead today.

I remember a friend who put his aunt into several annuities. The reason? She was a soft touch for her rather irresponsible children. In three years she had gone through $500,000 dollars of her net worth (about 2 million total) helping her children pay debts, and invest in 'sure fire, can't miss' investment schemes. By annuitizing about 2/3 her remaining assets the bulk of her estate became untouchable by his aunt and therefore unavailable to his financially idiotic cousins. Interestingly, his aunt asked him for some way to lock-up her money because she knew she could not constantly say NO to he children. Sad, but with a reasonably happy ending for the aunt. I am not sure what became of the children.

 

[LongPrime]

I just plugged in the information on a couple aged 65 putting in $400,000 and annuitizing at age 70. They received $2556.19/m for their entire life guaranteed. If they live to 100, that's $950,903 in benefits! That's not including X years certain, where if both annuitants die, the beneficiaries receive the remaining amount left for x years which could be as high as $710,000.

The old traditional annuities. be it SS, or Defined Benefit-Pension, minimizes the risk to the annuity company, hence reduces the return to the purchaser. This is OK and correct because the annuity company must all times be solvent and fulfill their obligation to the annuitant. BUT Suppose you can limit the longterm risk to the annuity company in exchange for higher fees and risk sharing? Could you get a higher rate of return? [rhetorical]

We bought 2012 fixed index, $100,000. Guaranteed ROR $8295/yr ($33,183/yr equivalent to $400,000 initial deposit, $995482 to age 100) , single life, without annuiitization, for life, and any remainder of account balance on death of owner goes to heirs. Guaranteed Income Withdrawal, fixed-Indexed, deferred, single premium.

Look before you show your goodies.

 

[brewer12345]

The old traditional annuities. be it SS, or Defined Benefit-Pension, minimizes the risk to the annuity company, hence reduces the return to the purchaser. This is OK and correct because the annuity company must all times be solvent and fulfill their obligation to the annuitant. BUT Suppose you can limit the longterm risk to the annuity company in exchange for higher fees and risk sharing? Could you get a higher rate of return? [rhetorical]

We bought 2012 fixed index, $100,000. Guaranteed ROR $8295/yr ($33,183/yr equivalent to $400,000 initial deposit, $995482 to age 100) , single life, without annuiitization, for life, and any remainder of account balance on death of owner goes to heirs. Guaranteed Income Withdrawal, fixed-Indexed, deferred, single premium.

Look before you show your goodies.

I hope you not only got kissed, but also got dinner and flowers prior to doing this [-]deed[/-] deal.

 

[travelover]

....... I am not sure what became of the children.

The parasites probably now just beg for money monthly, in smaller increments.

 

[LongPrime]

Brewer#s="I hope you not only got kissed, but also got dinner and flowers prior to doing this deed deal."
I wish. I think we got a travel mug from the agent. And blank look from the wife-it was her 401k rollover. My only reward is being able to brag about it here on this forum. And maybe I can find another one like it in 6 months.

 

[brewer12345]

Brewer#s="I hope you not only got kissed, but also got dinner and flowers prior to doing this deed deal."
I wish. I think we got a travel mug from the agent. And blank look from the wife-it was her 401k rollover. My only reward is being able to brag about it here on this forum. And maybe I can find another one like it in 6 months.

Oh, brag all you like about this stuff. We will try hard not to laugh.

 

[steelyman]

I'm not going to laugh. But I also won't buy an annuity!

 

[bmcgonig]

Oh, brag all you like about this stuff. We will try hard not to laugh.

I'd love to see an analysis as to why someone thinks that this is a good or bad deal. Just for my education. I don't know enough about these kind of annuities to know one way or the other. Thanks.