FIA looks like just what I need.

clifp said:
A lot of us are pretty sophisticated investor with both paper credentials and decades of real life experience. I generally read all 120+ page of prospectus before investing in products I don't understand.

Admittedly the last 4 or 5 year so far have been pretty reasonable time to invest in EIA/FIA, which is probably why the insurance companies are making them less attractive.

However, you have claimed there are good ones out there. If so show me.
I'd like to see two things a link to the prospectus, and second and more importantly a FIRECalc-like history of what the returns would have been like over the last say 60 years of the S&P.

For instance if Joe and Susan bought 100K worth Allianz xyz Annuity back in 1950 when they 40, what would have been their monthly income in 1975 at age 65, the same thing if they invested in 1960.

I'll make a deal show me current product that would have performed historical better than a diversified portfolio. I'll stop bad mouthing annuities.

What do you say?
Click to expand...

There is no prospectus and it is not an investment as these are not securities. They are not meant to compete with true index funds on a long term 30, 40, 50 year basis. You are talking about a product that is specifically designed for a 5-15 year period to lock in the principle and have a potential return which may or may not be better than a regular fixed annuity, depending on how the overall index performs. EIA's/FIA's are NOT designed to maximize returns, otherwise there would be risk of principle loss, which is common sense.

Most companies require signed product illustrations that at least show the performance over the best 10 years, worst 10 years, and last 10 years (or however long the surrender period is) compared to the benchmark index.

I'm not sure what you want me to show you for "the good ones out there." What do you consider good? What do you want out of the product? Guaranteed income? Higher guaranteed minimums? Return of premium option? I have said before on this forum that with the constant lowering of caps over the past two years, they are much less attractive than they used to be when there were 10-12% caps (they are now 4-6.5% mostly) unless you are specifically looking to use one of the guaranteed income riders and don't care about the caps. Most companies are reducing their guaranteed income because of the continuous low interest rate environment though, so that ship is starting to sail.

Ask someone who bought an EIA/FIA with a 12% cap if they've been satisfied with the product. Then ask them how the rest of their retirement accounts did in comparison.
 
TJAY replies

Dgoldenz, the product is American Equity’s Bonus Gold with the LIB rider. A similar one from North American Charter Series pays 4.5% instead of 5.5% for our joint lives. If I do this, I will likely split the premium between these two, unless I find a better deal. Both have 14-16 year surrender periods, but as you said, I’d be giving up things I don’t care about to get what I want – the 10% premium bonus, the 8% compound growth over the next 12 years and the lifetime income rider at 4.5% – 5.5%.

clifp, I am currently reading a paper from the Wharton School, titled “Real World Index Annuity Returns” that I’m hoping can shed some light on actual FIA performance. Here’s the link: http://fic.wharton.upenn.edu/fic/Policy%20page/RealWorldReturns.pdf

Wow 73ss454, I would certainly read 80 pages if it had even a slight chance of securing my financial future. And I would pay an independent professional to review it if I did not understand all of it. I can’t believe any open-minded, rational person wouldn’t. But thanks for your opinion.

REWahoo, I actually used a couple search engines in addition to Google and have read a number of articles (including the two you posted) by many knowledgeable people and, let’s just say, other folks.
 
These threads always remind me of the "Money Merge" mortgage account threads.
 
TJay....


A long time ago my mom wanted to buy an annuity... at the time I was not as educated as I am now... so we looked and bought one...

What we were looking for was to have an annuity that looked more like a whole life policy... in other words, she did not think she would ever need the money but did not want to give it away....

Almost all of the policies that we got was having her pay for life insurance for the full amount as she got older.. IOW, when she bought it at 65, she paid life insurance for a 65YO... when she was 80 she paid like an 80YO.. etc. etc.. All of these showed that her balance grew until she was in her mid 80s and then the cost of insurance got real high and all of her money would be gone by the time she was 95... this was the 'worst case' and all were saying 'it will never happen'....

We were finally shown one that only charged for life insurance on the difference between the cash we had with them and the amount they would have to give us if she died and it was life insurance... their worst case had her money growing no matter how long she lived.. also, the fee to the insurance agent was a LOT less than the other products we were shown...

My mother is now 91... and still in good health.. if we had bought one of the other products that 'sizzled', we would have had to take all the money out as the cost of insurance would have been way to high... all of our planning would have been for nothing... I am glad I looked at the worst case and saw which products were not for us.... but if I know what I now know... I would have made other suggestions to her... the tax issues are just to big to overcome so we continue to hold what we have....
 
brewer12345 said:
To OP, if you dig around on the forum there is a post I did a few years ago that explains in detail how you could replicate one of these contracts in your own account for a lot less expense and with far more flexibility. No credit exposure to an insurer, either.
Click to expand...

You did, and quite eloquently. But, it included buying options as he hedge, something a lot of folks won't do.........;)
 
FinanceDude said:
You did, and quite eloquently. But, it included buying options as he hedge, something a lot of folks won't do.........;)
Click to expand...

It also doesn't work when the interest rates on fixed instruments are less than 1% and won't guarantee an income for life at some point in the future.
 
FinanceDude said:
He assumed a one year CD at 4%? :confused:
Click to expand...

Check the date on the post.

In any case, its not like the insurers have a magical alternate interest rate environment with whhich to work with.
 
Last edited:
dgoldenz said:
Most companies require signed product illustrations that at least show the performance over the best 10 years, worst 10 years, and last 10 years (or however long the surrender period is) compared to the benchmark index.

I'm not sure what you want me to show you for "the good ones out there." What do you consider good? What do you want out of the product? Guaranteed income? Higher guaranteed minimums? Return of premium option? I have said before on this forum that with the constant lowering of caps over the past two years, they are much less attractive than they used to be when there were 10-12% caps (they are now 4-6.5% mostly) unless you are specifically looking to use one of the guaranteed income riders and don't care about the caps. Most companies are reducing their guaranteed income because of the continuous low interest rate environment though, so that ship is starting to sail.

Ask someone who bought an EIA/FIA with a 12% cap if they've been satisfied with the product. Then ask them how the rest of their retirement accounts did in comparison.
Click to expand...

I understand that the products are getting worse. I guess I am asking for example of real world annuity you have sold that have worked out well for your clients over 10+ year, similar to the Wharton study that Tjay linked.

E.g. back in 1998 I sold a 55 year old couple an Allianz Master Bonus EIA. It had 10% cap a 85% participation rate an annual reset etc. They invested 100K back in 1998 and when the retired at 65 in 2008, they are enjoying a annual income of $9800. Which is pretty similar to what the OP expects.

We can then compare an investment in 100K diversified portfolio and then purchasing an annuity at retirement.
 
clifp said:
I understand that the products are getting worse. I guess I am asking for example of real world annuity you have sold that have worked out well for your clients over 10+ year, similar to the Wharton study that Tjay linked.

E.g. back in 1998 I sold a 55 year old couple an Allianz Master Bonus EIA. It had 10% cap a 85% participation rate an annual reset etc. They invested 100K back in 1998 and when the retired at 65 in 2008, they are enjoying a monthly income of $8800. Which is pretty similar to what the OP expects.

We can then compare an investment in 100K diversified portfolio and then purchasing an annuity at retirement.
Click to expand...

They haven't really been around that long to make that kind of comparison. We have a few from ~2006 that had 10-12% caps (depending on number of surrender years) that have done well, hit the cap a couple times, and never lost a dime. Again, you can't compare them with alternate portfolios because there is risk of principal loss, while there is not with FIA's no matter how you want to paint them. The only way to lose money with an FIA is early surrender or if the charges for optional riders exceed the overall gain. Think about it as a fixed annuity with a varying return, not as an investment.
 
TJAY said:
Dgoldenz, the product is American Equity’s Bonus Gold with the LIB rider. A similar one from North American Charter Series pays 4.5% instead of 5.5% for our joint lives. If I do this, I will likely split the premium between these two, unless I find a better deal. Both have 14-16 year surrender periods, but as you said, I’d be giving up things I don’t care about to get what I want – the 10% premium bonus, the 8% compound growth over the next 12 years and the lifetime income rider at 4.5% – 5.5%.

clifp, I am currently reading a paper from the Wharton School, titled “Real World Index Annuity Returns” that I’m hoping can shed some light on actual FIA performance. Here’s the link: http://fic.wharton.upenn.edu/fic/Policy%20page/RealWorldReturns.pdf

.
Click to expand...

Tjay that was interesting article. My only criticism of it appears to focus the returns credited to your living benefit, which as the Scott Burns column isn't "real money". That said it is an important step in understanding these complicated financial product.

To me by far the most important question to get answered is how much is my annual income at age 70. While they can't predict the future, they certainly should be able to answer the question if I bought your product in 1969, 1979, 1989, 1999 how much would my monthly check be in 11 years later when I turn 70. That number is way more important than 8% compounded amount etc.

You clearly are going into this transaction with your eye open, which isn't the case with many customers. Good luck.
 
clifp said:
Tjay that was interesting article. My only criticism of it appears to focus the returns credited to your living benefit, which as the Scott Burns column isn't "real money". That said it is an important step in understanding these complicated financial product.

To me by far the most important question to get answered is how much is my annual income at age 70. While they can't predict the future, they certainly should be able to answer the question if I bought your product in 1969, 1979, 1989, 1999 how much would my monthly check be in 11 years later when I turn 70. That number is way more important than 8% compounded amount etc.

You clearly are going into this transaction with your eye open, which isn't the case with many customers. Good luck.
Click to expand...

The monthly income would be the same if this were 1969, 1979, etc because the income account has nothing to do with the index. It is simply a set guarantee of exactly 8% each year credited to the account. Then at age 70 (or any other age), you can withdraw 5.5% (or whatever is specified in the contract depending on age) of the total income account value every year for life even if the accumulation account value reduces to $0.
 
dgoldenz said:
They haven't really been around that long to make that kind of comparison. We have a few from ~2006 that had 10-12% caps (depending on number of surrender years) that have done well, hit the cap a couple times, and never lost a dime. Again, you can't compare them with alternate portfolios because there is risk of principal loss, while there is not with FIA's no matter how you want to paint them. The only way to lose money with an FIA is early surrender or if the charges for optional riders exceed the overall gain. Think about it as a fixed annuity with a varying return, not as an investment.
Click to expand...

The Wharton study looks at FIA starting in 1997. Any of the annuity before 2000 would meet TJay requirements, I guess you weren't selling back then. Which leads to the question why do you think these are (or more accurately were) good products when you don't have any real life experience with them funding peoples retirement? :confused:

There is actually a chance you could lose money if your insurance company goes bankrupt. I'd contend that the more aggressive their product the higher this chance. I suppose in theory there is a chance that a diversified portfolio would lose money over a 10-11 year period. In practice according to Firecalc 1 million dollar diversified portfolio (<50% equities) always ended up with more than $1 million, eleven years later for all 129 cycles. Given that most EIA have long surrender periods the chance of losing money for either over a 10+ years is pretty close to zero. Of course this is nominal dollars in real dollars, all bets are off.
 
clifp said:
The Wharton study looks at FIA starting in 1997. Any of the annuity before 2000 would meet TJay requirements, I guess you weren't selling back then. Which leads to the question why do you think these are (or more accurately were) good products when you don't have any real life experience with them funding peoples retirement? :confused:

There is actually a chance you could lose money if your insurance company goes bankrupt. I'd contend that the more aggressive their product the higher this chance. I suppose in theory there is a chance that a diversified portfolio would lose money over a 10-11 year period. In practice according to Firecalc 1 million dollar diversified portfolio (<50% equities) always ended up with more than $1 million, eleven years later for all 129 cycles. Given that most EIA have long surrender periods the chance of losing money for either over a 10+ years is pretty close to zero. Of course this is nominal dollars in real dollars, all bets are off.
Click to expand...

As you can see in the study, sales of FIA's did not "explode" until ~2004-2005. Again, the index returns have nothing to do with the guaranteed income payout. Whether the accumulation part of the policy earns 0% or hits the cap, that has no impact at all on the guaranteed side for income distribution. I stated earlier that caps have gone down substantially over the past couple years - however, if the sole purpose of the annuity is to provide a guaranteed income at a specific age, that's a different story. The caps and returns should have no bearing other than leaving the flexibility of "walking away" with the lump sum at the end to roll over or use for a SPIA instead if interest rates rise. Like I said, you have to give up what you don't care about to get what you want, it's part of the trade-off.

An FIA should not be used solely to fund a retirement, it should be used as part of an overall strategy. If you sent in an application for an FIA with 90% of someone's retirement going to the FIA, they would reject it as an unsuitable sale.

You can run all the FireCALC and theoretical equations you want. You can't, however, GUARANTEE that a diversified portfolio won't lose money, and you can't GUARANTEE a specific stream of income. Of course you give up some of your potential return on an FIA, there's no such thing as a free lunch. The question is whether the person feels it is more important to have a minimum guarantee or to try and maximize returns with the potential risk of loss. Doesn't have to be more complicated than that, even if the products themselves can sometimes be hard to understand.
 
Dgoldenz, that was excellent description of the income side of the FIA. If a purchase any that would be the reason. I want a guaranteed income stream in our later years of retirement so that the other 2/3 of our nest egg can invested in the markets, without having to worry about paying the bills during the, hopefully occasional, market dips.

I think I’m done here. It’s been fun and enlightening. My thanks to dgoldenz, chinco, nords, brewer12345 and also, the “other folks”. I will continue to do my due diligence before signing anything. Hopefully I can report back to you from the golf course on my 96th birthday that all went well with the FIA’s and that I finally shot my age.

TJAY

“But if I really say it, the radio won’t play it, unless I lay it between the lines.”
- Paul Stookey
 
dgoldenz said:
The caps and returns should have no bearing other than leaving the flexibility of "walking away" with the lump sum at the end to roll over or use for a SPIA instead if interest rates rise. Like I said, you have to give up what you don't care about to get what you want, it's part of the trade-off.


You can run all the FireCALC and theoretical equations you want. You can't, however, GUARANTEE that a diversified portfolio won't lose money, and you can't GUARANTEE a specific stream of income. Of course you give up some of your potential return on an FIA, there's no such thing as a free lunch. The question is whether the person feels it is more important to have a minimum guarantee or to try and maximize returns with the potential risk of loss. Doesn't have to be more complicated than that, even if the products themselves can sometimes be hard to understand.
Click to expand...

As you said TNSTAFL, you presumably are paying something in terms of 'guarantee' income for all of the complications in terms of participation rates, caps etc. What I'd like to see and I think Tjay should ask for is to see how much would my account been credited for if I bought this product in 69, 79. I understand it doesn't impact the minimum payment but are the ever cases where the minimum payment isn't also the maximum payment.? I.e. does the equity index part of the product actually benefit customer.


You can put guarantee in big bold letter and use it 1/2 dozen in a paragraph. But the reality is NOTHING is guaranteed in the financial world NOTHING (not even taxes). Insurance companies go broke (even big ones like *cough* AIG *cough*) and cause their clients to lose money. I can point to 140 years of FIRECalc data, and you can point to tens of millions of insurance claims being paid, but neither of us know what the future will bring.
 
clifp said:
As you said TNSTAFL, you presumably are paying something in terms of 'guarantee' income for all of the complications in terms of participation rates, caps etc. What I'd like to see and I think Tjay should ask for is to see how much would my account been credited for if I bought this product in 69, 79. I understand it doesn't impact the minimum payment but are the ever cases where the minimum payment isn't also the maximum payment.? I.e. does the equity index part of the product actually benefit customer.

You can put guarantee in big bold letter and use it 1/2 dozen in a paragraph. But the reality is NOTHING is guaranteed in the financial world NOTHING (not even taxes). Insurance companies go broke (even big ones like *cough* AIG *cough*) and cause their clients to lose money. I can point to 140 years of FIRECalc data, and you can point to tens of millions of insurance claims being paid, but neither of us know what the future will bring.
Click to expand...

Sounds like we're sort of in agreement here. I am not saying that a diversified portfolio will not do better over the long term, only that it's not a guarantee, which is what an annuity buyer is looking for. With the income rider products, aside from Allianz, the guaranteed income payout is fixed, it does not change with policy performance on the accumulation side. What you are paying for the guaranteed income is a percentage of the accumulation value each year (usually something like 50 basis points) and in most cases, lower caps than a product which does not have an income guarantee. Depends how they're structured.
 
dgoldenz said:
You can't, however, GUARANTEE that a diversified portfolio won't lose money, and you can't GUARANTEE a specific stream of income.
The question is whether the person feels it is more important to have a minimum guarantee or to try and maximize returns with the potential risk of loss.
Click to expand...
TJAY said:
I want a guaranteed income stream in our later years of retirement so that the other 2/3 of our nest egg can invested in the markets, without having to worry about paying the bills during the, hopefully occasional, market dips.
Click to expand...
As that famous statesman once protested, I guess it depends on what your definition of the word "guarantee" is...

But personally I think a guarantee is much more credible when it's SPELLED IN ALL CAPITAL LETTERS so that even I can understand what it is.
 
Nords said:
As that famous statesman once protested, I guess it depends on what your definition of the word "guarantee" is...

But personally I think a guarantee is much more credible when it's SPELLED IN ALL CAPITAL LETTERS so that even I can understand what it is.
Click to expand...

HITTING THE CAPS LOCK KEY IS EASIER THAN HIGHLIGHTING A WORD AND PUTTING IT IN BOLD LETTERS. :)

I consider a written contract a guarantee, but as has been stated numerous times, can have a problem if the claims-paying ability of the insurer is compromised.
 
I'M NOT YELLING. I PROMISE. :D

Alright, I think this thread has about had it and the OP seems to have got the info he was looking for.
 
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