Annuities and their role in our investing plan

[Cut-Throat]

Here is the problem I have with annuities:

- Give me 2.5% of your account balance every year and I will guarantee that over 10+ years (subject to many restrictions) you won't lose money.

This guarantee has almost zero value.

I agree with it's not a great way to build a retirment fund.

I respect your opinion Brewer. With that said - what is your opinoin of a 70 year old buying an annuity outriight via Vanguard with the objective of increasing his SWR safely? Not for accumulation, but for a lifetime of income?- Are there any other investments that you would recommend that would be 'safer' that would provide comparable income?

 

[brewer12345]

I respect your opinion Brewer. With that said - what is your opinoin of a 70 year old buying an annuity outriight via Vanguard with the objective of increasing his SWR safely? Not for accumulation, but for a lifetime of income?- Are there any other investments that you would recommend that would be 'safer' that would provide comparable income?

If you are in your 70s and buy a payout annuity with less than a majority of your stash, I think that would be an OK choice if you understood what you were getting into and were OK with the notion of a smaller estate. But, I would not buy one from VG because I don't like/trust the company that actually issues the annuities.

I don't think this works at all if you are younger.

 

[Cut-Throat]

If you are in your 70s and buy a payout annuity with less than a majority of your stash, I think that would be an OK choice if you understood what you were getting into and were OK with the notion of a smaller estate. But, I would not buy one from VG because I don't like/trust the company that actually issues the annuities.

I don't think this works at all if you are younger.

Thank you! - And I would not want one for anyone younger also. - And I totally buy into the idea of a smaller estate! 8)

 

[Nords]

But, I would not buy one from VG because I don't like/trust the company that actually issues the annuities.

Now that they're hypothetically Ace-less, how long/what would it take for AIG to rehabilitate themselves?

 

[Empty Pockets]

- "Give me 2.5% of your account balance every year and I will guarantee that over 10+ years (subject to many restrictions) you won't lose money."

Well, if you can do it on a tax deferred basis, and let me switch between equity funds & rebalance without incuring a tax and throw in a guaranteed minimum rate of return with a stepped up base every 5 years..... let's talk.

 

[brewer12345]

Now that they're hypothetically Ace-less, how long/what would it take for AIG to rehabilitate themselves?

I will never do business with that company, personally. There are so many insurers out there, why compromise?

 

[cute fuzzy bunny]

If you are in your 70s and buy a payout annuity with less than a majority of your stash, I think that would be an OK choice if you understood what you were getting into and were OK with the notion of a smaller estate. But, I would not buy one from VG because I don't like/trust the company that actually issues the annuities.

I don't think this works at all if you are younger.

How about the actual proposed version?

Would you increase your withdrawal rate over the "safe" limit, say to 6%, in your 50's and 60's, then offset the overspending by deferring social security until you're 70 and annuitizing half or more of what you have left, also at 70, in order to create a life-long safety net needed to offset the earlier higher spending rate?

If you did, would you consider those payments to be "ultra safe" or "guaranteed" and reasonable for a couple living from 70-120 years of age, in other words for 50 years?

Hmmm...Firefox's spell checked didnt like the word "annuitizing", offering "unappetizing" as its first alternative...

 

[Cut-Throat]

How about the actual proposed version?

Would you increase your withdrawal rate over the "safe" limit, say to 6%, in your 50's and 60's, then offset the overspending by deferring social security until you're 70 and annuitizing half or more of what you have left, also at 70, in order to create a life-long safety net needed to offset the earlier higher spending rate?

If you did, would you consider those payments to be "ultra safe" or "guaranteed" and reasonable for a couple living from 70-120 years of age, in other words for 50 years?

There was never any mention of Social Security in the questions that I asked you and Brewer! - Why don't you go back and read the posts. Social Security was in a different thread.

Not that it matters - It's totally unrelated! :

 

[cute fuzzy bunny]

Who said my question had anything to do with you or your question?

Besides, this is my thread so perhaps its time for you to move on!

 

[Cut-Throat]

Who said my question had anything to do with you or your question?

Besides, this is my thread so perhaps its time for you to move on!

I think it's time you took another 'break' from the forum

 

[cute fuzzy bunny]

I think it's time you took another 'break' from the forum

You're entitled to your opinion and that may indeed be the case.

However someone like you wont be the impetus.

Now run along before I ask an actual moderator to remove your unrelated posts from my thread.

As has been said before, you have a nice life now.

 

[brewer12345]

Play nice, kids.

 

[HFWR]

Hitler...

 

[cute fuzzy bunny]

Too late, he already suggested I take my leave.

Fortunately he lacks the troops to invade Poland.

 

[2B]

I voted #2. I've just never seen the numbers make sense.

I still consider buying an annuity a sign of either financial illiteracy or mental incapacity.

 

[cute fuzzy bunny]

And I had you figured for a solid #1 guy. Shows what I know.

I suppose that "if the numbers make sense" trickery is working as far as exposing who simply "hates annuities" and who just dislikes them when they arent financially rewarding.

 

[2B]

And I had you figured for a solid #1 guy. Shows what I know.

I suppose that "if the numbers make sense" trickery is working as far as exposing who simply "hates annuities" and who just dislikes them when they arent financially rewarding.

I hate annuities because of my father and FIL buying absolutely stupid products late in their lives. No rational person in their financial situations would have put their money there. To me, that's a clear indication that the sales people of these products are going for their fees and have no interest in whether the "investment" makes sense for their prey clients.

I have to admit that if the numbers looked right I'd be tempted but I'd mostly be suspicious about what I haven't yet discovered in the fine print.

 

[rs0460a]

I hate annuities because of my father and FIL buying absolutely stupid products late in their lives.

just wondering - instant or deferred? If they were sold a deferred, at their age, I would agree with you. However, if it was an instant annuity (fixed or variable), I'd be interested in learning the "problems" they encountered...

- Ron

 

[DRiP Guy]

.

I suppose that "if the numbers make sense" trickery is working as far as exposing who simply "hates annuities" and who just dislikes them when they arent financially rewarding.

I kinda found that odd when the poll first went up, but didn't think too much about it, and took it exactly as worded. I happen to be admittedly severely biased against annuities myself, would think it remotely possible I would ever be involved in one, but based on the wording, I think I was the first (and for a long time only?) one to say "Sure, 100% if the numbers make sense" When I say numbers, I mean all the numbers, though: return relative to other choices I could make, stability, risk, etc. So while I don't think the numbers will ever make sense for me, I would take a look at anything that seemed reasonable and let the numbers tell the story.

 

[2B]

just wondering - instant or deferred?  If they were sold a deferred, at their age, I would agree with you.  However, if it was an instant annuity (fixed or variable), I'd be interested in learning the "problems" they encountered...

- Ron

My father put all of his worldly assets into a variable annuity that can not be touched for another 2 years.  The annuity is in some high fee mutual funds (proprietary to the company) and has a 2% annual fee on top.  This annuity will survive his death by about 7 years before my siblings and I split it up.  When it does come out, it was set up to cause the maximum amount of tax confusion for all of us.

My FIL put about 80% of his meager liquid assets into two deferred annuities.  He got a guaranteed 3% (?) but it was tax deferred.  The only problem with tax deferral is that my in-laws total income is about $50K annually and almost all of it is from pensions.  Tax deferral isn't worth much to them.  DW triggered the 3% penalty to get the cash out to cover their nursing home and assisted living expenses.

 

[cute fuzzy bunny]

A worst case scenario to be sure, but the advice to look at the fine print and make sure you know what you're getting into seems to be very sound.

Looking at the 50% customer satisfaction rate with the products (in our meager and undersized sample)...this is usually caused by a product of low quality or something sold with expectations well in excess of what was delivered. Since this is a service offering, its likely the latter.

The Pinto had worse customer satisfaction levels, but thats probably because annuities dont catch fire and explode

 

[2B]

I'm surprised the annuity satisfaction levels are so low. Most annuity buyers are elderly who either don't understand the poor choice they made or die before they do. My wife told her father when she sold them and he was upset. He didn't want taxable income. He already paid too much in taxes in his opinion. Of course, he has Alzheimer's.

I still believe that buying a variable annuity is a sign of mental incapacity. My poor father never had two nickles to rub together until my mother died so I attribute his action to total ignorance. My mother had a whole life insurance policy and he took the entire meager proceeds to "invest" for his children. Even my investment-savy challenged siblings screamed when he told them what he did.

 

[sgeeeee]

I kinda found that odd when the poll first went up, but didn't think too much about it, and took it exactly as worded. I happen to be admittedly severely biased against annuities myself, would think it remotely possible I would ever be involved in one, but based on the wording, I think I was the first (and for a long time only?) one to say "Sure, 100% if the numbers make sense" When I say numbers, I mean all the numbers, though: return relative to other choices I could make, stability, risk, etc. So while I don't think the numbers will ever make sense for me, I would take a look at anything that seemed reasonable and let the numbers tell the story.

I guess I wasn't the only one who read it this way.

 

[Rich_by_the_Bay]

There is another take on this. Given that most people fail to save for their retirement, say some slimey salesperson sells them a VA or a whole life policy when they are young -- wrong reasons, high expenses, lousy returns, all the usual reasons not to.

I really think that in some cases the alternative is not a rational, well diversified investment portfolio relying on self-discipline, and long-term horizons. No, not for many. Instead, it's taking the money and spending it, then borrowing some more and spending that.

Given that choice, maybe some of those poor suckers actually benefitted from being sold a lousy product, but one that's still better than no savings at all.

Kind of convoluted logic, I realize, but it might make work out best for some. They're being saved from themselves, and paying a price for it.

Maybe that's why some people love annuities. Better to collect $1500 a month than nothing, even though on your own if you had the goods, you could be withdrawing $3000.

 

[laurence]

And I agree that the best, most ethical, lowest cost annuities (that narrows it down to about 5% of the products out there, right?) are definitely a decent option for those with no financial savvy. I was willing to let my friend be if the annuity his "advisor" was pushing wasn't too smelly, since he is finances averse. Unfortunately, that was not the case.