Annuity with a guaranteed 8% annual return

[wallygator69]

Hi Folks,

Hope I can get a little help.

A friend wants me to meet with his Annuity sales guy to discuss AVIVA BPA Select Income Advantage. Put in$ 250K at 50, have $540K at 60 and get $27K a year for life payout.

How can this be real considering the commission appears to be 4%-7%?

What am I missing? What are the pitfalls?

BPASelect Income Advantage Consumer Calculator

for agents

Annexus Group® - BPASelect Income Calculator


Thanks,

 

[Coach]

One thing, Wally, after a quick look at the disclosures. The percentages are all smoke and you can ignore them.. It's an annuity that starts paying 27K a year 10 years after you buy it for $250K. Period. You don't "earn" 8%, and never "have" $540K on which you get a 5% payout. They can use any numbers that get them to the payout they are willing to pay.

Coach

 

[travelover]

Run. This guy is not your friend.

 

[rescueme]

What's he smoking? (I want to share).

Disclaimer - I am retired and have an SPIA. Based upon your "friend", I would get a contract to ensure that he would receive what is promised.

Sorry - I would not hold my breath...

 

[REWahoo]

What am I missing?

The snake oil ads?

What are the pitfalls?

The same as investing in a perpetual motion machine.

 

[brewer12345]

Run.

 

[FinanceDude]

Hi Folks,

Hope I can get a little help.

A friend wants me to meet with his Annuity sales guy to discuss AVIVA BPA Select Income Advantage. Put in$ 250K at 50, have $540K at 60 and get $27K a year for life payout.

How can this be real considering the commission appears to be 4%-7%?

What am I missing? What are the pitfalls?

BPASelect Income Advantage Consumer Calculator

for agents

Annexus Group® - BPASelect Income Calculator


Thanks,

That "guaranteed return of 8%", is not a guaranteed RETURN, it is an increase in something called an "income base", which you can draw 5% from but CAN NOT walk away with. It is a crediting rate, NOT a rate of return..........

Bottom line, its not guaranteeing ANYTHING........

 

[Helen]

This is a really interesting thread about Equity based annuities. There are a few brave insurance agents trying to defend them.

A Look at an Equity-Indexed Annuity | AllFinancialMatters

 

[brewer12345]

EIAs are a sleazy product. I consider selling one of them to be essentially forsaking one's fiduciary to their client.

 

[mickeyd]

hey wallygator,

This is a fantastic annuity.

Your agent really needs 4%-7% commission (BTW, who decides which % he gets?).

He has a mortgage. Car payments (or rental) on that Lexus he drives are steep. Kids in private schools are not cheap, you know. Wife gets those regular botox treatments, and they are not covered by his medical plan.

Your contribution to his lifestyle is important to our economy, well to his economy anyway.

 

[wallygator69]

Hi folks,

Thanks as always for the great, prompt feedback.

Wally

 

[FinanceDude]

Hi folks,

Thanks as always for the great, prompt feedback.

Wally

If you need any extra ammo, let us know. We can give you 5-6 questions to ask that will kill any salesman's presentation..........

 

[JohnDoe]

Lets have the extra questions now for future use.

 

[Independent]

The one I like is "Can I get a sample contract so I can read it before we go any further with this discussion?"

In fact, I'd like to see a sample of the annuity in the OP.

 

[FinanceDude]

Lets have the extra questions now for future use.

OK:

1)What is the TOTAL EXPENSE of this annuity, inluding M&E AND management expenses?

2)You said the RETURN was guaranteed........that means I can WALK AWAY with my guaranteed return, right?

3)How long do I have to hold this annuity? Is there a NO SURRENDER option? (Most VAs have a NO SURRENDER option, but most agents don't mention that because they get paid 80% less up front on those share classes.

4)How are YOU compensated on this sale?

5)Why is this better for me than a traditional balanced portfolio of low cost mutual funds?

6)Show me in the prospectus where the CDSC schedule is located.

7)Give me a prospectus to look over, if I'm still interested after reviewing that I will be sure to call you. Don't contact me, I'll contact you........

There's more, but that's a start.........

 

[Helen]

Has anyone ever gone to a "free" seminar and exposed the sales tactics to the audience? I think it might be fun to study the contract in advance, then educate the audience as to why it was a con. The fun part would be in knowing I was saving someone from being ripped off.

 

[haha]

Has anyone ever gone to a "free" seminar and exposed the sales tactics to the audience? I think it might be fun to study the contract in advance, then educate the audience as to why it was a con. The fun part would be in knowing I was saving someone from being ripped off.

I have occasionally done the opposite. The salesperson is giving me a meal, and sometimes drinks. The other attendees haven't ever given me anything, and aren't planning to do that.

So I may act as an unpaid shill, just to watch the look on the presenters face.

Once the guy came up to me later and thanked me. He didn't know what I was up to, but he was pleased. Truth is I wan't doing anything, just passing time.

Ha

 

[Ed_The_Gypsy]

Ha, you are a rascal!

 

[ziggy29]

I'll guarantee you an 8% return for 10 years.

All it will cost you is 6% in management fees. I'll buy a 10-year Treasury yielding 3.7% to maturity, pay out 2% net of my fees and pocket the other 1.7% as pure profit. Ain't using OPM wonderful?

 

[dgoldenz]

The one I like is "Can I get a sample contract so I can read it before we go any further with this discussion?"

In fact, I'd like to see a sample of the annuity in the OP.

There should be no issue with obtaining a sample contract. Every company offers them if requested.

Has anyone ever gone to a "free" seminar and exposed the sales tactics to the audience? I think it might be fun to study the contract in advance, then educate the audience as to why it was a con. The fun part would be in knowing I was saving someone from being ripped off.

While you may think it's amusing, consider that the person holding the seminar pays around $100 per person attending...if you disagree with the approach, that's fine, but it's not a "con" and you are costing someone real money to waste their time.


FinanceDude - this is a fixed index annuity, not a VA.

OP - As others pointed out, the 8% guaranteed is not a lump sum that you can walk away with. If it was, everyone would jump on it and the insurance company would soon be out of business. It is a guaranteed "rollup" on the "income base", which is used to determine your payout each year for the rest of your life, depending on when you take the income.

There are two separate accounts, the cash value accumulation account that you can walk away with, and the income account, which is used to determine the annual payouts. The cash accumulation account is determined by the index changes or fixed rate applied. You are not annuitizing by taking the income, you are subtracting the payout each year from the accumulated cash value. If the cash value becomes $0, you still receive the payout every year until you die (or your spouse, if you choose a joint annuity). If you died 2 years after taking the income, your beneficiary would still receive the lump sum cash value left over.

On a side note, some annuities allow your beneficiaries to take the income account as a lump sum cash payment, if paid over 5 years if you died. Others do not allow that option and would just pay out whatever is left in the accumulation account.

 

[FinanceDude]

FinanceDude - this is a fixed index annuity, not a VA.

Even better, now folks can be bedazzled by such fancy terms as "participation rates" and "crediting ratios" and such........

 

[dgoldenz]

Even better, now folks can be bedazzled by such fancy terms as "participation rates" and "crediting ratios" and such........

Most of these have 100% participation rate, difference lies in the caps and method of crediting (i.e. point-to-point vs. monthly averaging, etc). These annuities are good for people looking for a lifetime income if the terms are favorable. Some are better than others. As the caps get lower and lower, they are less attractive from a deferred annuity lump sum payment standpoint. A couple years ago, the caps on most of these were 10-12% annually. Now they're 4.5-8% for the most part.

For anyone considering one of these, make sure you do get a copy of the sample contract to read it for yourself. There are plenty of agents who do what is right by the client, but there are just as many who are just "salesmen" as people here say. When someone is interested in an annuity, I go through item by item with them to explain what each part is and how it may effect the contract.

 

[FinanceDude]

Most of these have 100% participation rate, difference lies in the caps and method of crediting (i.e. point-to-point vs. monthly averaging, etc).

If the "difference" lies in the "method of crediting", then its not a 100% participation rate, is it? Keep in mind some of us have actually read over the Aviva contracts and their promises........ There is no true 100% participation rate, its kind of like how the govt measures inflation, it depends on whom you ask.......

For anyone considering one of these, make sure you do get a copy of the sample contract to read it for yourself. There are plenty of agents who do what is right by the client, but there are just as many who are just "salesmen" as people here say. When someone is interested in an annuity, I go through item by item with them to explain what each part is and how it may effect the contract.

Make no mistake; Annuities are NOT BOUGHT, they are SOLD.........

 

[dgoldenz]

If the "difference" lies in the "method of crediting", then its not a 100% participation rate, is it? Keep in mind some of us have actually read over the Aviva contracts and their promises........ There is no true 100% participation rate, its kind of like how the govt measures inflation, it depends on whom you ask.......

Make no mistake; Annuities are NOT BOUGHT, they are SOLD.........

Everyone is entitled to their opinion. The participation rate is the amount of index change credited based on the method of crediting, so yes, it is a 100% participation if the contract states it as such. If you have "crediting method A" with a 100% participation rate, that is certainly different than having "crediting method A" with a 75% participation rate. Different crediting methods have different levels of potential return. As an example, a "monthly sum" crediting method could return 25-35% in a given year if everything went perfectly - that can't be done with other methods. However, one month with a large negative return can negate the whole year's cumulative percentage increase, whereas a "monthly averaging" method doesn't result in such dramatic spikes.

Some people "sell" annuities, some people "sell" life insurance. I don't "sell" anything, I help people understand how to buy what they're looking for without getting caught up in the "gotchas", and I never charge them a dime. I saved one client last year over $18k per year on his health insurance. He was ready to buy another one of the same policies for about $2k/year less, had no intention of looking at other options. Someone else would have just "sold" him on the idea of saving $2k ("Hey, look at this savings! What a great deal!!!) , instead of me helping him explore how he could save even more and still get the best coverage. There is a difference, whether people think of insurance agents as slimeballs or not.

 

[brewer12345]

haaaahahahahaha!