donheff said:
Waddaya mean I promised not to get into the annnuity discussion anymore? OK, OK, I won't jump into the discussion but I want to trash the advisor for blasting his guns without adding some analysis. That is what you charge fo right?
So talk to John and explain why he is wrong about being able to safely withdraw a slightly larger yearly amount with an annuity than he can with only a self directed portfolio. By safely I am open to all the dangers and downsides that Brewer and 2B bring up. But it would be nice to hear it all articulated by a professional.
If you impress us enough with your reasoning we might be encouraged to pay for your services (no sarcastic icon implied here).
Ok.........I'll bite:
Since I have no friends on this board anyway, I'm not taking the risk of pissing anyone off................
I understand John's reasoning about why it sounds good to go the immediate annuity route. "Guaranteed payments regardless of market conditions" sounds great these days.........as a matter off fact, annuity sales of all types are up. But, times and things change.
Today, you don't have to give up control to in effect have the same benefits as SPIA without giving up control. I'll illustrate a couple points:
1)The prevalent thnking on this board is to invest in low-cost index funds through Vanguard and take a fixed withdrawal rate of 4% or less for the rest of your life. It all sounds good, if we're looking at the same average returns every year, something most software will do. Run Monte Carlo simulations on various periods in the market, and it may surprise you. Today, more than ever, people like "guarantees". Ask anyone getting a federal pension or Social Security if they would like that monthly amount to swing a lot up and down, and I'll bet the answer is a resounding NO!!!
2)In the "olden days" we all read about the 80 year old "little old lady" that gave her life savings to "mean and heartless insurance company A", and then died suddenly after annuitizing and getting ONE payment. Then her beneficiaries found out the insurance company got to keep all the money! I guess that's about when "period certain" became all the rage, and people have been hating on annuities ever since. Of course, to be fair, the LOVE for CD's from banks is so far beyond my understanding it's crazy......but I digress..............
3)It is true that annuities that allow market participation have high expenses called M&E that go to pay for the agent's commissions. etc. And I agree that they are sold, not bought for the most part. I have seen a number of egregious behavior in the scenarios they were sold in, and also where they have helped. I am not an annuity fanatic but they have their place in the marketplace.
4)Today's Variable Annuities, from reputable companies, allow you to control your money, while giving downside risk protection, and use portfolio models designed to mitigate risk. The biggest use of VA's is for rollover IRA's. The feds are looking hard at this because the haters keep saying that advisors are greedy SOB's because they know you can't "double dip" on tax deferral. So why do it at all? Well, in a growing way, pensions are dying, so the worker has to take responsibility for saving enough money to last them through retirement. So, after working for 40 years, and switching jobs a few times, now they have $300,000 to last them, along with Social Security of $20 K a year. And you know what? They want that $300,000 to give them a GUARANTEED return. They don't care AS MUCH about the percentage point return they want the SECURITY of the guaranteed return. When I worked in a bank, I saw millions and millions of dollars invest in IRA CD's...............that's the real world, folks................ as sad as it appears...........
5)My control issue is just that, control. Everyone that's read this thread knows the insurance company takes the lump sum, throws it in their general fund, overlays an actuarial table, and voila! You're good to go. If you do the math, you'll find it takes 13-15 years of "not dying" to get your money back. A GREAT deal for the insurance folks who have your money, no so good for you.
6)For John's dilemna: Do what you want, because it's YOUR MONEY. If an SPIA lets you sleep well at night, then so be it. What I was articulating above is in my experience, I have never seen immediate annuities as a "must-have" for anyone. I have never seen a scenario where other options that keep the investor in control could not be used.
If you have enough safety net, it could be an option. However, if it were my money, I woudl want the flexibility to get a chunk of "my money" when and if I needed it due to unforeseen events.