Fixed Annuity , not so fine print disclaimer

[Lakewood90712]

I got the yearly form letter from my Allstate agent trying to sell all kinds of " Retirement investment " products. This time something was new.
the fine print is now in 14 point on a seperate page.

" * Guarantees subject to claims-paying ability of the insurer. "

I'l give them credit for not burrying it in 2 point type at the bottom of the page.

 

[SarahW]

Good grief.

 

[2B]

The only reason had to be an increased fear of being sued for not qualifying the "guarantee." Everything I've ever read or heard about annuities from the salespeople or companies makes their "guarantee" sound as solid as FDIC insurance. All of the complications and limitations have also been left for the 2 pt font.

 

[Dennis]

LOL.. They're really something aren't they? I just Knew they would be comming Out oof the Cabinets during and now after 08's crashes and really pushing those " safe-Guaranteed" Annuities...

On a Local Chicago Radio show> WLS- On Sunday Mornings, they have this Investment outfit -Goldstone- really pushing " The Market will go down to 5500 by the end of this Year! But we can give you a Guarantee 8% on your Life savings......"

Of course, if it's on the Radio, it's got to be True and No Gimmicks, Right?

lol

 

[saluki9]

LOL.. They're really something aren't they? I just Knew they would be comming Out oof the Cabinets during and now after 08's crashes and really pushing those " safe-Guaranteed" Annuities...

Well, when you compare the 2008 performance of the insurance industry to that of the banks and brokers they have not done too badly.

 

[ESRBob]

In a way, buying these annuities to guarantee ourselves a safe refuge or insurance from market gyrations is something like the financial institutions buying CDOs or bond default insurance from a company who itself was at risk of going belly up and not delivering the hoped-for insurance. Wait a second, that was AIG, wasn't it? The same folks who are behind so many of the annuities. Hmmm....

I know the trusts for the annuitants are safer and more tightly regulated and so forth than the CDO insurance capital was, but at the end of the day the annuity issuers are investing in the same markets as you and I, and are subject to the same risks and rewards. So if buying the annuity was about buying peace of mind for the next 50 years or so, well, let's just say I don't own any annuities.

Seems to me TIPS may be one of the few actual safe havens out there which could give as close as possible to a guaranteed inflation-adjusted income stream over the long run. But that isn't exactly a secret, and right now they're paying a real 2.5% for a 20-year TIPS (auction on Jan 30 '09), which isn't quite the SWR we're all looking to lock in for the next 20 years... Still if I ever see TIPS real yields up over 3.25% or so I'll be tempted to buy in a meaningful way.

Edit: one little pointer I recently came across is to buy new TIPS as opposed to old 'after-market' TIPS. Reason is that old ones have an accumulation of inflation-adjustment additions added into their price which can be clawed back in the event we ever entered a period of deflation. Since TIPS can't return less than par value, a new TIP would give protection from both inflation and deflation.

 

[ziggy29]

Edit: one little pointer I recently came across is to buy new TIPS as opposed to old 'after-market' TIPS. Reason is that old ones have an accumulation of inflation-adjustment additions added into their price which can be clawed back in the event we ever entered a period of deflation. Since TIPS can't return less than par value, a new TIP would give protection from both inflation and deflation.

This is true, but the market has largely priced that in. Given two TIPS issued at different times with similar maturities, the older bond (which has had inflation adjustments it can lose) will be priced lower to provide a currently higher YTM. Whether it remained higher in the long run depends on how much deflation (as claimed by the government) causes the current inflation adjustment to go down.

 

[FinanceDude]

In a way, buying these annuities to guarantee ourselves a safe refuge or insurance from market gyrations is something like the financial institutions buying CDOs or bond default insurance from a company who itself was at risk of going belly up and not delivering the hoped-for insurance. Wait a second, that was AIG, wasn't it? The same folks who are behind so many of the annuities. Hmmm....

It was the holding company of AIG and not the insurer themselves. Has Vanguard dumped AIG as a VA vendor yet??

I know the trusts for the annuitants are safer and more tightly regulated and so forth than the CDO insurance capital was, but at the end of the day the annuity issuers are investing in the same markets as you and I, and are subject to the same risks and rewards. So if buying the annuity was about buying peace of mind for the next 50 years or so, well, let's just say I don't own any annuities.

A pension is an annuity as is Social Security....

Seems to me TIPS may be one of the few actual safe havens out there which could give as close as possible to a guaranteed inflation-adjusted income stream over the long run. But that isn't exactly a secret, and right now they're paying a real 2.5% for a 20-year TIPS (auction on Jan 30 '09), which isn't quite the SWR we're all looking to lock in for the next 20 years... Still if I ever see TIPS real yields up over 3.25% or so I'll be tempted to buy in a meaningful way.

Just wait until inflation comes screaming back after we dump a few trillion on the economy,maybe you'll have 5% or 6% TIPS.........

 

[ziggy29]

Just wait until inflation comes screaming back after we dump a few trillion on the economy,maybe you'll have 5% or 6% TIPS.........

In terms of real yield, I doubt it. If past history is any indication, TIPS are bid up -- and their real yields driven down -- when the market fears inflation. In such a scenario investors are willing to pay a lot more for inflation protection. Which is why the last few months have been (IMO) a good "buy low" opportunity for TIPS investors; the market is discounting the value of inflation protection when it doesn't see much inflation on the horizon for the next year or two.

 

[ESRBob]

Ziggy, You've got a heavyweight agreeing with you that TIPS are a buy -- Bill Gross at Pimco is buying at these levels, but he is a trader. I agree -- I doubt you'll ever see real TIPS yields brush 4% again (they did for a little while when TIPS first came out and nobody quite understood or trusted them).

Actual yields, with the inflation adjustment? -- Sure We may be seeing 10%+ by the time we're out of the woods if inflation plays out as some fear. But the real yield will have been locked in at whatever it was when you bought them -- in this case, 2.5%