Advisor Suggested Annuities?

[Bruno]

You ignored Harley's point regarding your inaccurate comment about inflation and SWR.

Thanks Jim for not calling me a liar. Not sure what part of my comment you believe was inaccurate.

I believe in the past most believed that you could take 4% SWR and could outlast your money. IMO in today's world it might not be about outlasting your money but taking a SWR that never goes down to leave your kids.

“If history is any guide for the future, then withdrawal rates of 3% and 4% are extremely unlikely to exhaust any portfolio of 50/50 stocks and bonds.“

I would not only worry about inflation. There are lots of variables at play here, including present stock and bond valuations, inflation, and yields on Treasuries, which will influence returns in the coming years.

I am not pulling close to 4% SWR and doing GREAT.

I am NOT or claim to be and EXPERT. I only stated what i have read to come to a conclusion. I could be WRONG. Some of this was copied from:

https://20somethingfinance.com/safe-withdrawal-rate/

 

[Bruno]

Not sure that is true. I think most people here understand that in some situations that a SPIA may make sense as long as other parts of the portfolio provide inflation protection since most SPIAs lack inflation protection. Also, I think many here concede that MYGAs aka plain vanilla fixed annuities are ok as a CD substitute in some situations, warts and all.

But beyond those two simple types, I think the consensus is that annuities are a bad value because of lack of transparency, complexity, excessive fees and poor returns. That would include virtually all VAs.

I've never owned an annuity and probably never will but I ran the financial reporting and analysis shop for a life insurer that sold lots of annuities so I know them well.

Also, SWR presumes that withdrawals are increased each year for inflation, so Harley makes a valid point.

There are some people here like you that have been fair on Annuities. I don't believe that most annuities are a GOOD deal.

 

[jimbee]

Thanks Jim for not calling me a liar. Not sure what part of my comment you believe was inaccurate.

Hi Bruno. I disagree with this statement from post #33.

For a long time 4% withdrawal was ok to live on and now ppl think you need 4% with COLA.

As far as I know, the 4% always included adjustment for inflation, based on the Bengen study from 1994. Here is the applicable quote, "Assuming a minimum requirement of 30 years of portfolio longevity, a first-year withdrawal of 4 percent, followed by inflation-adjusted withdrawals in subsequent years, should be safe." You can see the full report here. http://www.retailinvestor.org/pdf/Bengen1.pdf

 

[zinger1457]

As far as cost, I find it difficult to believe there's absolutely no cost for any annuity, even a SPIA. Why would they offer it if they don't at least make a buck off it? Is it true? Can you get an annuity for nothing?

A good rule of thumb concerning annuities is the more complex the annuity the higher the commissions. The commissions for a fixed annuity like a SPIA are typically in the 1-3% range, variable annuities are typically in the 6-8% range. Not surprising which ones the brokers push, 75% of annuities sold are the more complex high commission type.

 

[Bruno]

As far as cost, I find it difficult to believe there's absolutely no cost for any annuity, even a SPIA. Why would they offer it if they don't at least make a buck off it? Is it true? Can you get an annuity for nothing?

Do all annuities have high fees?

No. Some investment companies sell annuities without charging a sales commission or a surrender charge. These are called direct-sold annuities, because unlike an annuity sold by a traditional insurance company, there is no insurance agent involved. With the agent out of the picture there is no need to charge a commission. Firms that sell low-cost annuities include Fidelity, Vanguard, Schwab, T. Rowe Price, Ameritas Life and TIAA-CREF.

https://money.cnn.com/retirement/gu...tm#:~:text=No.,is no insurance agent involved.

 

[harley]

Do all annuities have high fees?

No. Some investment companies sell annuities without charging a sales commission or a surrender charge. These are called direct-sold annuities, because unlike an annuity sold by a traditional insurance company, there is no insurance agent involved. With the agent out of the picture there is no need to charge a commission. Firms that sell low-cost annuities include Fidelity, Vanguard, Schwab, T. Rowe Price, Ameritas Life and TIAA-CREF.

I'd challenge you to find anything in my post about high fees. I believe all I said was

Sure, if you're planning to die next year a non-COLA annuity might make sense, but if you're leaving town that soon you can just live off your investments and avoid the annuity costs.

Your response said

ANNUITY COST?? maybe i need to be buying your annuities. I am buying ONLY fixed deferred annuities. My annuities have never cost me anything.

I asked if the companies really sold these annuities for no cost, which doesn't appear to be the case. I never once said annuities are a bad idea, just that you should consider the effect of inflation, which you inaccurately said wasn't a part of the SWR calculation. If the insurance companies do sell them for absolutely no cost, that's a good thing. But it doesn't negate the need to be aware of the ongoing degradation of the buying power of an annuity. If that fits a person's needs, then it's a good idea. But the SWR concept has always taken inflation into consideration when planning for a long term retirement.

 

[Bruno]

I asked if the companies really sold these annuities for no cost, which doesn't appear to be the case. I would have thought as long as you been playing in the sand box you would understand there are MANY kinds of annuities. The annuity i have is like a CD and for the LAST time it cost me NOTHING. I guess you think i have a reason to LIE to you. I never once said annuities are a bad idea, just that you should consider the effect of inflation, which you inaccurately said wasn't a part of the SWR calculationPlease point out in my post where i said inflation was not part of the SWR? I said people used to think 4% SWR was ok and now they think you need 4% with COLA. You are the one that had to read into it when i said 4% with COLA meant NO ONE figured inflation into SWR i guess. I never said ONCE anything about inflation in the first 4% SWR. . If the insurance companies do sell them for absolutely no cost, that's a good thing. I am not buying 20-30 year or life annuities. They are for 5 years. They are like a CD but pay a little better rate but not FDIC insured. But it doesn't negate the need to be aware of the ongoing degradation of the buying power of an annuity. If that fits a person's needs, then it's a good idea. But the SWR concept has always taken inflation into consideration when planning for a long term retirement.

I only replied after reading your post #7. That said "And if you keep reading we'll present you with a large number of truths. Then you just need to figure out which one(s) you like". I tried to explain I have had good luck with two of my ANNUITIES. On these 5 years annuities I don't really care about inflation its more about managing TAXES.

I REALLY don't care if you reply to this post it has gone so far off course from the original OP Question. I am DONE with it.

 

[harley]

The ONLY annuity we would consider is a an Multi Year Guaranteed Annuity or MYGA. This is simply a CD equivalent with an Insurance Company. the main advantage is that Tax is deferred until withdrawal. Great for managing MAGI until Medicare kicks in.

With CD rates being what they are, this type of annuity intrigues me. I looked them up on AnnuityAdvantage.com, and I don't see a downside. They state there are

No fees, loads or sales charges.

I had never heard of this type of annuity before ShokWaveRider brought them up. Since I'm past age 59.5 and wouldn't face the 10% IRS withdrawal penalty, do any of y'all see a reason not to use these instead of CDs? I assume they aren't FDIC insured, but they do say the principal is guaranteed, whatever that means. And I see there can be early surrender charges, which could be an issue. But the difference in rates between them and CDs seems significant, and you appear to be able to just roll them over or do a 1035 exchange to another company. Am I missing something here?

 

[pb4uski]

These MYGAs are usually pretty simple and have many similiarties to CDs. More credit risk compared to essentially risk-free FDIC insured CDs, but negligible credit risk for highly rated issuers in the whole scheme of things.

If you have a need to withdrawal beyond the 10% annual free withdrawal the surrender fees are much higher than CD early withdrawal penalties that are usually 1/2 year of interest (or say 1-2% vs ~5%+ for MYGAs).

For the more highly rated insurers, the interest rates are competitive with CDs.... but to me not compellingly better and IME not near as good as credit union CD specials, which require some patience.

One niche where I think they can really be useful is for taxable savings for people seeking ACA subsidies because the interest is tax deferred until it is withdrawn or also potentially for college financial aid where annuities are counted differently from CDs.

 

[zinger1457]

I assume they aren't FDIC insured, but they do say the principal is guaranteed, whatever that means.

Each state has an annuity guarantee fund that would cover at least some of your losses if the company went belly up. The amount of coverage varies by state but believe the minimum amount is $250K. Should also check the rating of any company you might consider buying an annuity from.

 

[Tracer]

If they are suggesting variable or index annuities, RUN AWAY! If they are talking about life insurance products, RUN AWAY! If they are talking about SPIAs (Single Premium Immediate Annuity), then maybe. But I have never had an FA anywhere, ever recommend a SPIA. It's always the more lucrative (for them) variable, index or life insurance type annuity.

SPIAs make sense for longevity insurance, but because interest rates are at the lowest in history, they are not a good deal right now. The only way they make sense right now is if you are approaching age 80. You can do better in CDs or a high interest savings account than what a SPIA is currently paying.

So, RUN AWAY!

SPIA's are the only type of annuity I would buy. You're essentially buying your own pension. Advisers don't push them because there's no money in it for them. I would bet the OP's adviser is not talking about SPIA's. I bought two when rates were much better. The monthly income (which is mostly tax free) is nice. They, along with SS, pretty much cover my basic expenses. My IRA RMD's are for discretionary expenses. Soon the sum of all the payments I've received since buying them will equal my initial investment. I'll continue to get those payments for the rest of my life. If I live to 100 like my dad, I'll get my initial investment back many times over without worrying about market ups and downs. While I have plenty in the market with my IRA's, I sleep a lot better knowing those payments will always be there regardless of market fluctuations.

 

[jazz4cash]

SPIA's are the only type of annuity I would buy.

Are you opposed to the “CD-like” MYGA products? If so, why?

 

[Tracer]

Are you opposed to the “CD-like” MYGA products? If so, why?

Ok, You got me there. I forgot I actually own one of those too. A simple and straightforward annuity that is essentially a CD issued by an insurance company. I invested $10,000 in a 5 yr back from ELCO Mutual Life and Annuity about 7 years ago that had a rate of 3.5%. After 5 years I could have annuitized it, cashed out and pay all the deferred taxes or keep the money in at a slightly lower rate of 3.25% (which it's still currently paying). I chose the later being that after the 5 yr term ended, it's totally liquid now, the taxes keep deferring and there's nowhere else I could get that sort or return from any bank in a savings account without any withdrawal penalties. Unlike the SPIA, which is giving me a steady stream of income for life, this a totally different animal. More of a savings vehicle that compounds interest just like a CD. The difference is no 1099 every year. So yea, these may be a viable alternative to a CD if you have idle cash you won't be needing for a long while that has certain advantages over a CD.

 

[jazz4cash]

I’m looking at a product from Gainbridge which is underwritten by Guggenheim Life. The 3 yr is 3.25 I think and 3.6 for the 5 yr. I need to find a home for some credit union CDs maturing over the next 12 months. With the historic collapse of treasury rates this week I expect it could be unattractive to lock into a depressed interest rate for a savings product.

 

[capjak]

I’m looking at a product from Gainbridge which is underwritten by Guggenheim Life. The 3 yr is 3.25 I think and 3.6 for the 5 yr. I need to find a home for some credit union CDs maturing over the next 12 months. With the historic collapse of treasury rates this week I expect it could be unattractive to lock into a depressed interest rate for a savings product.

although 3-5 years is a short term risk, I always looked a A rated or higher by AM Best for SPIAs, maybe I would risk slightly lower on a 3-5 year MYGA.

 

[jazz4cash]

I always think insurance company ratings are confused with bond ratings. For relatively tiny amounts I would put with a single insurer, I’d be fine with a B rating. No FDIC but they do have state guaranty fund as a backup.

 

[capjak]

Here is the AM Best insurance company ratings definitions:

http://www.ambest.com/ratings/guide.pdf