Who purchased an annuity and is glad they did?

[FloridaJim57]

I don't intend this post to be a reshash of the pros and cons of annuities, in my particular case immediate fixed annuities. Most of the posts warning people against purchasing one were written by people who do not have one. My parents, for example, put about one third of their savings in an annuity and were quite happy. I realize the world has changed since then, but I still talk to people who are retired and happy with their purchase. Anyway, has anyone purchased an annuity and his happy and may I ask what percentage of your savings did you put towards the annuity.

 

[COcheesehead]

When I was working I maxed out all my contributions to my 401k, IRA/Roth when eligible and was putting tens of thousands into a taxable account every year.I was in the highest tax bracket so I invested in what I believe Fidelity calls a deferred variable annuity. It acts like an IRA with about 30-40 investment options. They charge me .25% a year for the privilege which is cheap. It’s tax deferred and a biggie is no RMDs. I put $150k in 2015, it has more than doubled since then. It only represents a fraction of my assets, but I look at it as long term money and likely won’t touch it for years.

I can pull money out in chunks or when I turn 95 it automatically annuitizes the funds.

So I am happy with it. It gave me one more tax sheltered option with a bonus of no RMD down the road.

 

[ShokWaveRider]

We Do not have one ourselves, but interested in people's actual annuity experiences, as OP said those who have one, are happy, and have not sold them. Personally, I think currently interest rates are too low to make them competitive.

 

[skyking1]

We have one, no it was not competitive, but we are happy with it nonetheless. DW was snakebit after the 08 debacle which led to the purchase, and now it will bridge the gap between our retirement and my SS at 70.

 

[donethat]

In the early 2000's I was sold 3 variable annuities by an adviser I trusted at a time when I was focused on other things (my business, my family, etc.). i quickly realized these products are trashed by Bogleheads, people on this forum, Ken Fisher and generally anyone who was paying more attention than I was. Long story short, I now regard them as the best move I ever made financially. They provide us with enough guaranteed annual income that, along with our Social Security, we don't have to tap into any of our other investments allowing them to accrue in "legacy" accounts which will eventually pass to our children when we are gone. We don't worry about the ups and downs of the market, safe withdrawal rates, etc. and are comfortable with an asset allocation in those accounts with over 80% in stocks. Granted these annuity contracts were written long ago and there are no comparable deals now available. We got lucky through no fault of our own. But I sleep better than I ever have.

 

[RetiredHappy]

I would not buy immediate fixed income annuity because the rates are too low to make sense. However, I bought 2 term deferred income annuities and could not have been happier. I used IRA money, bought at the age of 53 (Yr 2016), starts paying when I turn 60 with 10-year term on the first annuity, and the second will start when I turn 70 for 15 years. I price checked every day for 3 months when we decided to retire and could not buy the 2 term deferred annuities fast enough when I saw the numbers.
- Paid $218K on the 10-year, pays $2819.50 per month for 120 months, starting at age 60.
- Paid $210K on the 15-year, pays $3785.58 per month for 180 months, starting at age 70.

If I die before the annuities start paying, my beneficiaries get back what I had paid into. If an annuity starts paying and I die, my beneficiaries will continue to get payments for the term duration of the contract. For example if I die at 61, my beneficiaries will continue to be paid monthly until the end of that contract, i.e. 9 more years. The one that is supposed to start paying when I turn 70, will be refunded to my beneficiaries.

The last time I checked, I would have to pay $750K for the 2 annuities to start paying out at 60 (next year) and 70 yr old respectively. I know stock market has gone up alot over the past 5 years, however the amount that I paid has increased even faster than if I had invested the money myself.

The annuities form a very small percentage of our investable assets. We look at it as a piece of the income pie - SS, annuities and RMD. Over the next 6 years, we will need to withdraw dividends from our taxable portfolio but after I turn 65, we will not need to touch our investments except my husband's RMDs. The 3 legged stool will be sufficient to support our expenses, which are pretty high.

 

[Time2]

The problem I have is, just because the owners of a annuity are happy doesn't mean that if instead they had put that money in a Total Market Mutual Fund or an S&P fund that they could withdraw twice as much at 4% than they get from the annuity. That question needs answered before any wisdom can be gleaned whether an annuity can be called a wise decision.

 

[easysurfer]

I'm Happy.

Happier I have one in times when the market tanks .

 

[Time2]

I'm Happy.

Happier I have one in times when the market tanks .

That's great!
Now how about some numbers.
What year did you get the annuity?
How much was invested?
How many years did you get nothing out?
How much per year does it payout?


Just want to say, I have never looked at an annuity, don't have a clue about payout, or anything else. As has been said, a lot of advice is given that they are bad. So let's analyze a specific case or three. As I'm sure time frame matters.

 

[skyking1]

we will have held ours for 10 years and it was not at all competitive with the market. 4% is about what it will yield. Once again though, it was about DW's feels, not market wisdom.

 

[travelover]

...........Most of the posts warning people against purchasing one were written by people who do not have one............

That would be me. I don't hit myself in the head with a hammer, either, so I don't know for sure if it hurts.

 

[Sniggle]

The problem I have is, just because the owners of a annuity are happy doesn't mean that if instead they had put that money in a Total Market Mutual Fund or an S&P fund that they could withdraw twice as much at 4% than they get from the annuity. That question needs answered before any wisdom can be gleaned whether an annuity can be called a wise decision.

Folks buy an annuity so they KNOW what their fixed income stream will be. They are happy with it because they can rest easy, regardless of what the stock market does, knowing that they will have that income when they need/want it.

In other words, the annuity is more about peace of mind and financial stability than maximizing return, and if that is what you want to enjoy retirement than it might be well worth giving up some potential gains (1 in hand worth 2 in bush).

Thankfully, I will have a couple of smallish pensions that will fill that role, giving me about $60k annually at 62.

 

[Koolau]

My old deferred annuities were beating inflation until this year. "Glad?" I guess I consider these instruments a valuable part of my portfolio. YMMV

 

[ShokWaveRider]

I guess I am having a little trouble with the fixed annuity math. Now I have not dug into it in great depth.

I did a little quote research and: For $100k joint life for a 68- and 63-year-old respectively it came to $413 a month. Now, $100k divided by 240 (20 years of months), the result is $416 a month. That is with no return calculated into the mix.

I do understand they offer a certain degree of comfort to the beholder, but that appears to be the only real value. I do not predict my life expectance to be another 20 years, maybe if I am really lucky.

Not justifying anything here, just making an observation.

 

[skyking1]

Ours is a MYGA, so it pays out a finite amount. We are planning a 6 year payout, and the same 100K will put a ~$1950 deposit in the bank every month until I take SS at 70. DW likes that flow thing.

 

[all4j]

I think part of the challenge in these discussions is the tendency to use too wide a paint brush to paint all the same. There can be important distinctions between immediate vs deferred, fixed or variable, myga, etc. So that context helps when someone relays their situation.

My limited experience is that they are often viewed positively in non-financial matters. For example, I think a common case is a couple in which 1 of the 2 just doesn't have the interest in finances. They may (likely do) have the mental capacity and/or even the aptitude. They simply don't want to spend time on it. And then there are cases of expected cognitive decline based on family history. Annuities can help the 'sleep well at factor' factor.

 

[Souschef]

DW has one that she put he late husbands insurance payment into. She rolled it over when it matured. The new salesman offered a 9% bonus if she rolled it into another annuity. I read the small print, and found the expenses were much higher. I put it into a spreadsheet, and after year 4, she would be losing money. I gave a copy to the salesman.
The thing is that DW is comfortable with it, so....

However, I got a Brother laser printer thrown into the deal,

 

[finnski1]

I guess I am having a little trouble with the fixed annuity math. Now I have not dug into it in great depth.

I did a little quote research and: For $100k joint life for a 68- and 63-year-old respectively it came to $413 a month. Now, $100k divided by 240 (20 years of months), the result is $416 a month. That is with no return calculated into the mix.

I do understand they offer a certain degree of comfort to the beholder, but that appears to be the only real value. I do not predict my life expectance to be another 20 years, maybe if I am really lucky.

Not justifying anything here, just making an observation.

Yes. Therein lies the rub doesn't it. With effective annuity rates so low they are hard to justify. Also they typically have no COLA so your math shows that you could quite literally keep it under the mattress for the 20 years and spend it as you go. However what happens in years 20-30 or more. That is, I guess, the peace of mind factor that some mention. You are basically betting on longevity. I would rather do that with delaying SS. And I don't mean to bring up the ss timing decisions but I think it should be weighed against other forms of annuities.

 

[youbet]

Folks buy an annuity so they KNOW what their fixed income stream will be.

Well sorta.......... Unless they have one of the very few cola'd annuities that were sold, they only know what their nominal income from the annuity will be. The real income is totally unknown and, as we're seeing now, real income over time is sometimes subject to significant erosion. Inflation risk is a big deal with non-cola'd annuities.

 

[youbet]

I would rather do that with delaying SS. And I don't mean to bring up the ss timing decisions but I think it should be weighed against other forms of annuities.

Yes, please, let's not turn this thread into yet another "when to take SS" thread!

I believe OP is talking about purchased annuities that you buy from an insurance company, not SS or pensions.

While I don't own an annuity, I do believe some annuities, in some circumstances and with the right timing, could be useful. Because my DW is very definitely not into finances or managing money (beyond paying the bills and balancing the checkbook), I'd like to understand what type of annuity might be appropriate to shore up a minimum standard of living for her should I pass first. She's ineligible for my SS and gets none of her own, so that's not part of the equation.

Any suggestions as to what type and measured by what metrics would be appropriate for us?

 

[Time2]

Ours is a MYGA, so it pays out a finite amount. We are planning a 6 year payout, and the same 100K will put a ~$1950 deposit in the bank every month until I take SS at 70. DW likes that flow thing.

$1950 x 6 x 12 = $140,400 total payout.
During the six years you are getting $23,400 each year.
If you just kept the $100,000 as cash you could pull $16,666 per year. You got an extra $6,733 per year over that with the annuity.
My calculations show you earned just under 6% per year.

I don't think it is a bad trade for piece of mind, with not knowing what the market is going to do and when it's going to do it.

 

[FloridaJim57]

That was not my question

The problem I have is, just because the owners of a annuity are happy doesn't mean that if instead they had put that money in a Total Market Mutual Fund or an S&P fund that they could withdraw twice as much at 4% than they get from the annuity. That question needs answered before any wisdom can be gleaned whether an annuity can be called a wise decision.

Since I wrote the original post, I think I know what I am looking for. I am sure that most of us know that you can probably get better returns in the long run via the stock market. My question was, or is, knowing that are you still happy with your annuity purchase. Let's not hijack the conversation with things I did not ask about.

 

[braumeister]

Let's not hijack the conversation with things I did not ask about.

WADR, I think you're getting a wide variety of responses because there is a wide variety of annuity types. Your OP was a bit vague with "has anyone purchased an annuity?"

 

[Bikechuck]

Anyway, has anyone purchased an annuity and his happy and may I ask what percentage of your savings did you put towards the annuity.

We have two that account for approx 1/3 of our portfolio.

One is a fixed annuity that yields a guaranteed minimum of 4.5%. It is fully liquid and not annuitized. Since I have not annuitized it I can withdraw any amount at any time without penalty and it is fully inheritable to my beneficiaries. If I annuitize it the payout would be > 4.5% but then it would no longer be fully liquid and inheritable. I will consider annuitizing it if and when I reach my late 70s but only if it makes sense based on the size of my portfolio, interest rates and health status at that time.

The other is TIAA Traditional currently yielding 3%. I have not annuitized that one either and will consider doing so later in life.

We are retired and in our late 60's so for now we are taking interest only payments on these annuities. When combined with our Social Security they will meet all of our basic living expenses when I begin taking SS at the age of 70.

The rest of our portfolio will meet our discretionary expenses and hopefully generate enough of a return to keep up with inflation as our annuities are not indexed for inflation.

I feel very fortunate to have these annuities and consider them to be part of our fixed income portion of our portfolio. I like them better than today's bond funds because they have a better yield and the principal will not decline should interest rates rise.

 

[easysurfer]

That's great!
Now how about some numbers.
What year did you get the annuity?
How much was invested?
How many years did you get nothing out?
How much per year does it payout?


Just want to say, I have never looked at an annuity, don't have a clue about payout, or anything else. As has been said, a lot of advice is given that they are bad. So let's analyze a specific case or three. As I'm sure time frame matters.

Folks buy an annuity so they KNOW what their fixed income stream will be. They are happy with it because they can rest easy, regardless of what the stock market does, knowing that they will have that income when they need/want it.

In other words, the annuity is more about peace of mind and financial stability than maximizing return, and if that is what you want to enjoy retirement than it might be well worth giving up some potential gains (1 in hand worth 2 in bush).

...

+1 on what Sniggle said .