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IRA, 401K, Annuity: or not?
Old 05-15-2005, 10:25 PM   #1
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IRA, 401K, Annuity: or not?

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Re: IRA, 401K, Annuity: or not?
Old 05-16-2005, 11:29 AM   #2
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Re: IRA, 401K, Annuity: or not?

Annuities are basically a bet between you and the issuer that you'll die before you get as much out of the product as they can make on it, and that theres money left over at the end.

You will almost always do far better investing the money yourself, especially given the long investment period you're looking at.

There are some instances that annuities might be a good idea. Mostly if you're in excellent health, have superbly long lived relatives, have other income sources, and are ok with the amount the annuity will pay you. Look at the IRS life expectancy charts...if you are pretty sure based on relatives lifespans and your own relative health that you're going to substantially beat those, then maybe its worth further considering.

Where the heck is tony the annuity king when we need him?
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Re: IRA, 401K, Annuity: or not?
Old 05-16-2005, 04:11 PM   #3
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Re: IRA, 401K, Annuity: or not?

My take on the matter is that the fees for an annuity is very excessive (even Vanguard)...

Also, you are probably not in the tax bracket that would benefit you. If you start reading some of the 'new thinking', they are saying that with the low tax rate of capital gains even 401(K)s are not as attractive for some people as the gain is considered ordinary income when withdrawn. The same for annuities if I am not mistaken...

For myself, I did not go into annuities as it was not good for many reasons.
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Re: IRA, 401K, Annuity: or not?
Old 05-16-2005, 06:56 PM   #4
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Re: IRA, 401K, Annuity: or not?

Quote:
Originally Posted by charlottebandito
Was wondering the effectiveness of adding an annuity in the near future as another tax shelter account.
Well, I believe in the old saying of "diversification". Although some would disagree, I find adding a small portion to annutities each year to be a good diversification tool.

GRANTED - it has clauses, as do all investments. Namely, I need to be investing in an annuity when current rates are reasonable. Sure, future rates might drop, but that's the chance I'm willing to take.

Also, I look towards one of the fraternal benefit societies to send my annuity money to. Why them? Because they traditionally offer higher rates, and NO FEES. For instance, the Polish Catholic Union (www.prcua.org)
is currently offering 6% on an annuity. Of course, the rate is not guaranteed forever (just a year, I believe), but they have historically offered high rates, and they appear to be on a reasonable financial footing.

As I said, it's a SMALL part of my portfolio (after my current $3,100 annuity deposit I'll be making in a few weeks, I'll have a whopping total of $6,400 invested in 2 annuities, which makes up about 1.4% of my net worth).

Why do I do it? Because of the tax-deferred advantage, and it offers a little diversification.

To each his own, however...
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Re: IRA, 401K, Annuity: or not?
Old 05-16-2005, 08:45 PM   #5
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Re: IRA, 401K, Annuity: or not?

Don't like annuities. See, Who's Preying on your Grandparents in the Fire and Money Section of this forum.
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Re: IRA, 401K, Annuity: or not?
Old 05-17-2005, 12:17 PM   #6
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Re: IRA, 401K, Annuity: or not?

I had my eye drawn to something interesting in the annuity world. I cant get a lot more info on it as they dont sell it in california yet, but they will be soon.

Consumer Reports takes "Gift Annuities" starting in amounts of $5k and up. The small goodies are a lifetime membership and lifetime subscription are included with any annuity.

They have both deferred and immediate annuities.

One interesting part is that since its a non-profit, you can deduct a little less than half of the annuity 'gift' as a tax deduction, and part of the annuity payment is tax free.

The example they sent me (deferred annuity, currently 43 years of age, start payment at 60, $10,000 'gift'):

Donation:10K
Annuity Rate: 12.4%
Payment: Quarterly
Charitable deduction: 4071
Annuity: 1240 (245 of that tax free for the first 24 years, then its 100% taxable)

The annuity rate goes up more if you're further away from the payment start.

When they offer it in CA I might drop 5-10k into one of these, as Peter says its one more slice of diversity. Would be nice to not get those pesky subscription renewal things any more too

If you're interested, email rdrucker@consumer.org with your name, address, phone, age and amount you're interested in 'donating'. He'll send you a couple of pages of info on the rates and payment schedules. Took a few weeks for me to get it, but its well detailed info, and I've received no sales calls or other 'pressure' on it.
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Re: IRA, 401K, Annuity: or not?
Old 05-17-2005, 02:40 PM   #7
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Re: IRA, 401K, Annuity: or not?

I'm pretty sure what charlotte had in mind was a low cost (35BP or so) variable annuity without bells and whistles. Charlitte, these aren't bad products, since they are very inexpensive and are basically mutual funds in a tax deferred wrapper. Hpwever, they come with a lot of strings attached and profits withdrawn get taxed at marginal rates rather than cap gains tax rates. To cut to the chase: If you are planning on holding lots of bonds, REITs or other tax-inefficient assets, a variable annuity might not be a bad choice. However, if you will mostly be holding equities, you might as well just put the money in a regular taxable account and follow a LTBH strategy. You will come out ahead tax-wise, and you can get at the money any time you like.
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Re: IRA, 401K, Annuity: or not?
Old 05-17-2005, 03:03 PM   #8
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Re: IRA, 401K, Annuity: or not?

Quote:
However, if you will mostly be holding equities, you might as well just put the money in a regular taxable account and follow a LTBH strategy. You will come out ahead tax-wise, and you can get at the money any time you like.
Bingo
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