Prudential Advanced Series Annuity

[Mary Ellen]

What is the opinion of the forum for this type of retirement investment?

$100k, at 62 years old, start drawing payments at 67, includes survivorship, life insurance, guaranteed 6% return.

Thanks

 

[brewer12345]

Search the board for threads on variable annuities and you will find lots of debate.

 

[Rich_by_the_Bay]

Mary Ellen, I suggest you do a search for "annuities" in this forum. They are generally not popular and one reason is that they are sometimes marketed deceptively. Many buyers don't understand what they are buying.

For example, I'd bet dollars to donuts that yours does NOT "guarantee 6% return." more likely it is a 6% distribution on the total amount, and a big chunk of that 6%is just them returning you a slice of your own premium money. Just a hunch ... .

Caveat emptor.

And welcome to the board!

 

[mathjak107]

never confuse a 6% withdrawl rate with a 6% return.

i happen to like immeadiate annuities...

imagine you needed 6,000 a year pretty much guaranteed forever .. you have 100,000.00 ... well if you wanted to play it safe the best you could do is about 4,000 from a 30 year treasury. the other 2,000 would have to come from principal.

only problem is next year you have less than 100,000 and even less interest.

but suppose i said give me the 100,000... ill give you back 6,000 bucks of your own money every year and you can spend every penny.. and next year i wont reduce the amount you get, ill give you another 6,000 . if you live long enough to get all your money back ill then continue to give you the 6,000 bucks a year forever on my dime .


only hitch is if you die before you get all your money back i keep the money you didnt get back.


that is in the most basic form how an immeadiate annuity works. dont confuse it with a variable or deferred annuity. those can be horrible. high fee , commission and expense laden they are usually poor choices.


i have to work on incorporating a small immeadiate annuity into my final retirement plans but im still a year and a half away

 

[zinger1457]

I’ve been looking at this and this is my understanding how it works. These are complicated so you need to do your homework and review carefully.

Prudential does offer a Lifetime 6 Plus option to their advance series variable annuities for an additional fee. It does guarantee 6% growth per year after fees until you start making withdrawals. If you don’t make any withdrawals your money is guaranteed to double in 10 years. The 6% annual gain only counts to the total used to calculate lifetime income withdrawals. If you decide to withdraw all your money at once I believe you only get back your initial investment. You can then start to make lifetime income withdrawals at a set rate (up to 5% if between 59.5-79 and 6% if over 80).

My understanding is that lifetime income is guaranteed, based on the total when withdrawals started, as long as withdrawals don’t exceed the 5-6% listed above. Any excess withdrawals will reduce the total used to calculate your lifetime income.

 

[Bikerdude]

Welcome! I'm not a big fan of annuities but I can see using a "SPIA" (single premium immediate annuity) for a portion of a portfolio, say 25 to 50% depending upon the person and circumstances. The product you are looking at is not a SPIA.

I would limit each SPIA to 100K as that is the amount most states will replace if your insurance company defaults. You can use this site Immediate Annuities - Instant Annuity Quote Calculator. to price out a SPIA for your state. Only choose insurance companies that are rated the strongest for an annuity or split the amount between two companies to reduce risk.

 

[Coach]

Mary Ellen, a couple of thoughts: do shop around and compare vendors. You mentioned that the product you're looking at includes life insurance. There's no reason to buy life insurance if you don't need it. Also, in your planning, keep inflation in mind. Unless the payout is indexed to inflation, your buying power will go down year after year. That may be just fine -- but you need to be aware of it.

Coach

 

[mathjak107]

never confuse a 6% withdrawl rate with a 6% return.

i happen to like immeadiate annuities...

imagine you needed 6,000 a year pretty much guaranteed forever .. you have 100,000.00 ... well if you wanted to play it safe the best you could do is about 4,000 from a 30 year treasury. the other 2,000 would have to come from principal.

only problem is next year you have less than 100,000 and even less interest.

but suppose i said give me the 100,000... ill give you back 6,000 bucks of your own money every year and you can spend every penny.. and next year i wont reduce the amount you get, ill give you another 6,000 . if you live long enough to get all your money back ill then continue to give you the 6,000 bucks a year forever on my dime .


only hitch is if you die before you get all your money back i keep the money you didnt get back.


that is in the most basic form how an immeadiate annuity works. dont confuse it with a variable or deferred annuity. those can be horrible. high fee , commission and expense laden they are usually poor choices.


i have to work on incorporating a small immeadiate annuity into my final retirement plans but im still a year and a half away

the insurance companies can do this and they have something that you could never have trying to do this on your own

they have a big pile of dead people.. those forfeitures are what lets this work for them.

 

[Mary Ellen]

I would like to thank everyone for there response's. This is a Prudential advanced series variable annuities, asap lll. It goes from the orginal 100k investment to 167k value in about 5 years. With a surrender value of 163k and death benefit value of 167k. At age 67 I receive 9k per year which increases every year. At age 83 it peaks at 413k value, 413k surrender value, 413k death benefit and 28k annual income. Of course these are annual net returns that are projected but not guaranteed.

What scares me is these are all hypothetical and are not guaranteed. It also says you could lose money. I sure would like the monthly income for life, but do not want to lose my principal.

I am making a list of questions to ask on a three way call between my cpa, Prudential agent and myself. What type of questions would you suggest I ask?

Thanks in advance.

ME[-][/-]

 

[mathjak107]

i would only look into whats called an immeadiate annuity if it were me. it dosent sound like thats what your looking at.... all that other stuff ends up costing to much for what you get....

 

[donheff]

This is a Prudential advanced series variable annuities, asap lll. It goes from the orginal 100k investment to 167k value in about 5 years. With a surrender value of 163k and death benefit value of 167k. At age 67 I receive 9k per year which increases every year. At age 83 it peaks at 413k value, 413k surrender value, 413k death benefit and 28k annual income. Of course these are annual net returns that are projected but not guaranteed.

What scares me is these are all hypothetical and are not guaranteed. It also says you could lose money. I sure would like the monthly income for life, but do not want to lose my principal.

WTF? I thought the whole attraction was they guaranteed the 6%. If 6% is just what they "project" will happen based on their best guestimate, this is just the same old, same old variable annuity.

 

[zinger1457]

I would like to thank everyone for there response's. This is a Prudential advanced series variable annuities, asap lll. It goes from the orginal 100k investment to 167k value in about 5 years. With a surrender value of 163k and death benefit value of 167k. At age 67 I receive 9k per year which increases every year. At age 83 it peaks at 413k value, 413k surrender value, 413k death benefit and 28k annual income. Of course these are annual net returns that are projected but not guaranteed.

What scares me is these are all hypothetical and are not guaranteed. It also says you could lose money. I sure would like the monthly income for life, but do not want to lose my principal.

ME

The numbers don't add up to me. They show your account growing at about a 7% annual rate but at the same time you're withdrawing over 5% each year. You should be scared. I also like the idea of an immediate annuity to cover my retirement expenses, it is guaranteed income but you give up access to the principle. Ask them about the Prudential Lifetime 6 Plus option. It seems to offer some of the benefits of an immediate annuity (guaranteed income) but you retain access to the principle.

 

[brewer12345]

Mary Ellen: These types of annuities are extremely complex products with prospectuses that run into the hundreds of pages. Whatever else you decide, DO NOT let the agent or anyone else rush you into anything. Before you sign on the dotted line, you should understand all of the details of the product and be OK with them.

I cannot help you with questions to ask the agent because I think these are awful products for the consumer and you would be a lot better off staying as far away from this sort of product as possible.

 

[Rich_by_the_Bay]

Sounds llke guaranteed income for life is your goal. A single-premium immediate annuity will do that for you, though at low rates of return. Such a strategy has its supporters, at least for a small portion of your portfolio (like 20%).

You are doing the right thing by checking it out closely.

 

[mickeyd]

What scares me is these are all hypothetical and are not guaranteed. It also says you could lose money. I sure would like the monthly income for life, but do not want to lose my principal.

Run away! Run away!

 

[73ss454]

I would like to thank everyone for there response's. This is a Prudential advanced series variable annuities, asap lll. It goes from the orginal 100k investment to 167k value in about 5 years. With a surrender value of 163k and death benefit value of 167k. At age 67 I receive 9k per year which increases every year. At age 83 it peaks at 413k value, 413k surrender value, 413k death benefit and 28k annual income. Of course these are annual net returns that are projected but not guaranteed.

What scares me is these are all hypothetical and are not guaranteed. It also says you could lose money. I sure would like the monthly income for life, but do not want to lose my principal.

I am making a list of questions to ask on a three way call between my cpa, Prudential agent and myself. What type of questions would you suggest I ask?

Thanks in advance.

ME[-][/-]

Only question you need to ask is, where's the door?

 

[FJKCT]

Mary Ellen,
1st...When viewing the illustration ask to see the worst case scenario. 2nd but more importantly remember your stated goal to the advisor/agent was a need for income, not liquidity, nor death benefit. It's likely the death benefit is there as part of the contract, again get the worst case scenario for the benefit so you understand it but don't get caught up in it. Remember your primary goal is reliable lifetime retirement income. Also, if your concerned you may liquidate the money in let's say 10 years frankly there goes the income off it as well. If you buy a product with a good guarantee you shouldn't need to liquidate it (barring unforseen events) but we'll try to prep you for those with some info later on.
Most folks here are advising to avoid risk (some by suggesting SPIA's, running away, doing homework)
I like the do your homework crowd. Fact is there is more than one risk to concern yourself with in retirement. It sounds as though you'll require a certain level of income throughout retirement (an unknow period of time) and it's best to plan "worst case" (funny...worst case is you living a long time and needed that income) since running out of money at some point in the future isn't a "plan" per se.

What risks do you want to plan for?
Well lets start with income risk...
You'll need that money on a regular basis until you die... an unknown.
You'll need that income to keep pace with inflation (gas, milk and taxes will go up in price while your in retirement).
You'll need to have a pot of cash in case of emergency (new roof, car, etc).
I've seen some folks break it down like this:
Emergency money= money markets, laddered CD's, TIP'S (these can also produce income or just leave them to grow).
Essential income= You can use a Combo of: Fixed annuity/SPIA/index annuities/ Variable annuities with guaranteed withdrawal rider.
Non-essential = low cost: Mutual funds, ETF's, individual stocks.

Not many folks use the variable annuities because of the complexity...they blame price and deceptive sales practices, but fact is most are good products you can use in conjunction with other good products, they just require more due diligence (e.g. homework) on the part of both the client and advisor and most folks today are just to lazy to get granular, after all it's only their retirement, it's supposed to be easy isn't it! THINK about it a bank with a mediocre CD rate sells you a CD knowing you can go around the block and pick-up another .75% is that a deceptive sales practice or are you just not doing your homework?

Do your homework...start by knowing the risks you need to address.
For example: Risks in retirement may include reliable income, inflation (cost of goods you buy), living a long time (outliving your resources), medical costs.

I've seen people think they are skirting risk by planting their money in 20 seperate banks in CD's and draw the interest...a very simple if not so eco friendly solution to more complex products/solutions. The problem with that is 3 years ago they were averaging 4.5%...today that's about 2% and their expenses have NOT gone down so they dip into principal likely never to be recovered and thus draw that 2% on less principal next year.
The risk for SPIA users is there as well, had you been on a fixed income (such as a SPIA provides) when gas was hitting $5+ a gallon where did they find the extra money..this at the same time many folks were seeing their homes reassesed and property taxes on the rise. Look there is nothing wrong with either of those products, just know where they are weak and use other products to protect yourself from all the real risks, not just those you perceive or 10 people (myself included) decide to scribble here.

This isn't meant as a plan for you to follow but just some guidelines and food for thought. Sorry for the length but it's too easy for people to blurb some nonesense up here and think they are helping someone make a decision about their 20+ year retirement income plan.

 

[FinanceDude]

only hitch is if you die before you get all your money back i keep the money you didnt get back.

Not exactly, it depends on the payout option you selected, much like a pension.........

 

[73ss454]

Looks like we're being visited by some LI and Annuity salespeople. This could get interesting. Where's ArtG when he's needed.

 

[FinanceDude]

i would only look into whats called an immeadiate annuity if it were me. it dosent sound like thats what your looking at.... all that other stuff ends up costing to much for what you get....

SPIA monthly payouts are at their lowest in many years, maybe OP can wait until rates increase.......

 

[clifp]

I think it is terrific you are involving your CPA in this conversation. Money well spent IMO.

Although the simple solution to run away is also worth considering. IMO it is ok to buy an annuity, but never to be sold one. So if you walked into the Prudential office and said I am interested in a variable annuity what do you have than fine. If on the other hand, the Prudential got your name somehow and suggested this would be a good product for you, then you need to be very suspicious.

FJKCT makes some good points. (Although I have sneaky suspicious that he has some connection to the insurance industry).

Not many folks use the variable annuities because of the complexity...they blame price and deceptive sales practices, but fact is most are good products you can use in conjunction with other good products, they just require more due diligence (e.g. homework) on the part of both the client and advisor and most folks today are just to lazy to get granular, after all it's only their retirement, it's supposed to be easy isn't it! THINK about it a bank with a mediocre CD rate sells you a CD knowing you can go around the block and pick-up another .75% is that a deceptive sales practice or are you just not doing your homework?

If you stick with your existing bank for a CD instead of shopping around for a better price than the consumer is to blame. Suggesting someone do their homework when shopping for a variable annuity is a different story. These products are exceedingly complicated. They are often designed by the same type of people that gave us CDO and CDO squared. Products which even Alan Greenspan said he couldn't understand..... I am guessing that in many cases the agents don't fully understand them.

 

[brewer12345]

And VAs expose you lots of acrrier risk. And they are a lot less generous and more expensive than they were 2 years ago. And they are complex enough require an advanced degree to figure out. And they pay large commissions to salesmen.

Scared yet? You should be.

 

[talltrees]

I don't know if this still holds true, but Prudential has a very poor history of fraud and deciet in their securities subsidiary back in the 1980's and 1990's. Read Serpent on the Rock, by Eichenwald, or In Good Faith, by Sharp.
Be very careful with these people.

 

[clifp]

We forget to mention that Variable Annuities have some pluses. I'm sure that thousand of kids have attended college thanks to variable annuities. Of course they are the insurance agents kids..

 

[FJKCT]

Seriously Mary Ellen, here's the solution.
Tin can with secure lid buried in the back yard.
Benefits:
Instant liquidity
You know where your money is and can get to it on your terms.
No fee
No greedy bankers/advisors/agents will make a dime off your hard earned dough.
Fire protection
Unlike under the mattress having it buried is like free fire insurance.
Flood protection
Being buried it can't float away and with a secure lid it should be sealed tight and safe.
Easy to understand
Hey, it's cash in a can...what needs to be explained/disclosed?!

Beyond these passive aggressive jaded strings of non-information just do your due diligence...as I stated earlier there are MANY products that can help you establish a reliable income in retirement and protect you from multiple risks...however it is up to you to do research AND understand what you are getting into. Remember research is not conducting a popularity contest determined by which website you happened to visit...surely had you visited an annuity centric site you would have gotten much different responses that would have been no more helpful than these. Fact is we don't know your exact situation and to offer solutions would be inappropriate. No matter what you choose to buy don't buy until you feel comfortable and understand it in the best case, most likely case and worst case scenarios... if you run all the products you use through this test you should come up with a good mix. It won't be easy but if you truly are concerned about doing the right thing you'll take the time.