Annuities

[zinger1457]

Quote:

Originally Posted by all4j Without data, I'm assuming that most annuities today are sold, not bought. & the seller pockets a nice, upfront commission. Blackrock seems to be putting themself in the middle of that in this case -- between the 401k/tdf & the 2 annuity providers. In that spot, there is at least potential for Blackrock to aggregate demand & get better (albeit slight?) deal from provider. Is there any potential for this to become disruptive of the current sales model? Will consumers seek it out if there isn't a sales person recommending initially? I think I saw where the 401k providers will be using the tdf as the 'default' option if an employee doesn't specify another allocation. Is this possibly feeding off concern for viability of soc sec? any likelihood the tdf will become available for ira not just 401k (harder to police the caps though)? Thoughts??

Maybe I missed it but who is Blackrock and what is their involvement with 401K's and annuities? Not sure if SPIA's fall in the sold rather than bought category, the commissions are much lower than other annuity products and they aren't typically pushed by brokers.

[jazz4cash]

Quote:

Originally Posted by zinger1457 Maybe I missed it but who is Blackrock and what is their involvement with 401K's and annuities?.

https://www.cnbc.com/video/2021/10/1...ed-assets.html

[RetiredHappy]

Quote:

Originally Posted by all4j Without data, I'm assuming that most annuities today are sold, not bought. & the seller pockets a nice, upfront commission. But the bigger part there is that they are saying they won't be taking the usual high commission. So more $ at work upfront in a possibly better product. Is there any potential for this to become disruptive of the current sales model? Will consumers seek it out if there isn't a sales person recommending initially? I think I saw where the 401k providers will be using the tdf as the 'default' option if an employee doesn't specify another allocation. Is this possibly feeding off concern for viability of soc sec? any likelihood the tdf will become available for ira not just 401k (harder to police the caps though)? Thoughts??

Not always true! I wanted to buy the specific term deferred fixed income annuities and my previous ML FA in CA tried to dissuade me from buying because in his own words, he knew nothing about and they could not be good as investments in the stock market was better. I contacted immediate annuities to sell me the 2 specific annuities. The FA then regretted not selling to me because I pulled IRA which was under ML management to buy the annuities. He did not make the commission on the sale of annuities. I am extremely happy with the purchase of the 2 annuities. I would do that again in a heart beat, maybe even double the amount.

[RetiredHappy]

Quote:

Originally Posted by all4j out of curiosity, is part of each distribution tax free as return of capital? or are gains distributed 1st until exhausted?

These were bought with my IRA money so the entire payout is taxable.

[RetiredHappy]

Quote:

Originally Posted by pb4uski Then with respect to your original question on "return" it becomes much more complicated in that you would have to calculate the expected value for each possibile set of cash flows and mortality to derive a set of expected cash flows and then calculate an IRR (discount rate that equates those expected cash flows to the initial premium).

The best part about these 2 term annuities is that once payout starts, it will continue for the full 120 / 180 months. So I really need to live just past 70 years old, and my beneficiaries will continue to be paid for the remainder of the 15 years. I am getting close to 60 where the first term annuity will start the payout.

To be honest, I suspect LF made a mistake. They re-worked the payout for new buyers about 3 months after I bought the annuities and the 15-year payout amount reduced about 50%. My husband thought they could be trying to gain market share when I bought them. Who knows.

[ncbill]

Quote:

Originally Posted by bmcgonig I subscribed to MaxiFi Planner last year, the Lawrence Kotlikoff App that tries to set up your finances in retirement so that it smoothes out your discretionary spending over the entire period. The one thing that really surprised me was that it suggested that I annuities my entire IRA at age 83. At the moment it’s about 1/3 of my investments.

I found much the same...annuities not recommended until after age 75 for me (in some scenarios after age 80)

[Luvtoride]

Quote:

Originally Posted by RetiredHappy Not always true! I wanted to buy the specific term deferred fixed income annuities and my previous ML FA in CA tried to dissuade me from buying because in his own words, he knew nothing about and they could not be good as investments in the stock market was better. I contacted immediate annuities to sell me the 2 specific annuities. The FA then regretted not selling to me because I pulled IRA which was under ML management to buy the annuities. He did not make the commission on the sale of annuities. I am extremely happy with the purchase of the 2 annuities. I would do that again in a heart beat, maybe even double the amount.

Not surprising that a FA with a brokerage company like ML would dissuade you from annuities while pushing complex equity strategies. When I switched to a fiduciary FA, I couldn’t even explain the convoluted equity strategy that ML advisor had invested my wife’s IRA funds in.
No reason to work with a one-sided advisor when there are reasonable Insurance issued products that might work for some individuals.

Glad it worked out for you RH.

[DaveInMi]

Insurance companies use actuaries to write up annuity contracts just like insurance policies. On average, the insurance company comes out ahead in both annuities and policies.
It works kind of like Vegas; on average, the house wins.

[RobbieB]

I would hope so or they would be out of business.

[MikeTN]

Quote:

Originally Posted by pb4uski If you paid $100,000 and received $487/month for 19 years (84-65) that's an IRR of 1.12%. A 10 year period certain has an IRR of ~1.48% so that sounds about right. I don't know if I would say it is skewed to the insurer.... it is just that interest rates are very low and they'll be investing your premium money mostly in bonds so you aren't going to get a lot of return.

I agree, but note one further consideration: perception of one's own longevity. A person with a known health condition that would likely shorten life (diabetes, cancer, heart condition etc. is unlikely to buy a life annuity. So those of use who do buy them will, on average, likely live a bit longer than the tables indicate. The insurance companies know this and factor it in. For SPIAs their rates are reasonable

[RetiredHappy]

Quote:

Originally Posted by Luvtoride Not surprising that a FA with a brokerage company like ML would dissuade you from annuities while pushing complex equity strategies. When I switched to a fiduciary FA, I couldn’t even explain the convoluted equity strategy that ML advisor had invested my wife’s IRA funds in. No reason to work with a one-sided advisor when there are reasonable Insurance issued products that might work for some individuals. Glad it worked out for you RH.

We just moved all of our managed investments out of ML and we are still working on simplifying the whole portfolio. It is not easy, especially for taxable accounts as they will incur capital gains tax if we were to sell them.

[zaqxsw]

If you're still working and maxing out 401K and IRA contributions, an annuity might make sense for more tax deferred savings. A basic premise for you to do that, is that you will never annualize it. It gets passed on in your estate, and only the earnings are taxed to the beneficiaries. They choose how to take it.

I inherited an annuity in 2012 and it was absolutely perfect in filling the income gap from retiring at 57 to claiming Social Security next month, at 67 1/2 (timing complicated due to spousal benefits).

The only annuity I would consider to annualize would be my pension. I did that and it absolutely was the best deal 10 years ago to get a steady stream of income. That's on top of too much money that I really didn't want to invest, but did. I'm conservative.

You couldn't touch the return on it, and obviously not now, on it's lump sum value! Yea, inflation will eat into it down the road, but it's a great base income to count on. Nothing exists like it, so I'm happy.

Plus I'm in the category of "Blow That Dough". It's actually become an issue as my DW isn't as adventurous I am.

[almost there]

I did the same thing 5 yrs ago at 55. 280k paid $1520.00 per month for life. Wife gets 1/2 if I kick 1st. I believe this type is inured to $3500 a month. And this is well under that.
No regrets....... Have pulled over 91k out, and am now 60. But agree most are not so good... And am not up to speed on MYGA's.... So I can't add anything...

[mickeyd]

Quote:

heavily skewed in favor of the party selling you the product.

Life insurance agents sell annuities to make money for the company and for the agent. Why is this difficult to understand?

[OldShooter]

Quote:

Originally Posted by mickeyd Life insurance agents sell annuities to make money for the company and for the agent. Why is this difficult to understand?

Maybe this is a way to look at the situation:

There are efficient markets and inefficient markets. An efficient market is where goods are standardized and prices are well known both to buyers and to sellers. In an efficient market, prices tend to collapse to the point where only the most efficient sellers survive. The classical example is the cash grain market, though any grocery store has many examples. In an inefficient market, he who has the most information wins. In cash value insurance, especially in annuities, there a myriad of product variations and buyers do not know the market pricing. This allows sellers to charge much higher prices than they could if the market was efficient. MYGAs and term life tend towards being quite efficient, which is why you see web sites showing various companies' pricing. It's not perfect because despite AM Best's efforts and the various state guarantee funds, the financial condition of the insurors is not completely guaranteed. Hence the customer is taking a small risk without being able to understand it well.

So are annuity salespeople dishonest? Strictly speaking, I don't think so. But I do think there is an ethical question when the margins get really rapacious and the target market is ignorant people who think there really is a free steak dinner.

(I used to have a company that sold used large-ticket capital equipment all over the country. That was a good example of an inefficient market. It was not uncommon for us to double our money by buying a piece of equipment and reselling it, sometimes without even taking physical possession. I think the good 'ol boys dealing Hard Red Winter Wheat do not see those kind of margins. We worked very hard at being the company who had the most market information. That's why we successfully did what our sellers and buyers couldn't or didn't want to do for themselves. They understood and appreciated this.)

[Tracer]

For me, SPIA's offer me some peace of mind. I purchase two SPIA's from two separate companies 12 years ago with an inheritance. Those monthly payments, along with my SS, pretty much cover all my basic monthly expenses. In two years I'll have everything back that I bought them for. I will keep getting those payments for the rest of my life. The major part of those payouts are tax free because they were purchased with after tax money. I do not need my IRA's, Roth IRA or other investments I have to live on. I sleep pretty well at night.

[Sunset]

Quote:

Originally Posted by Tracer For me, SPIA's offer me some peace of mind. I purchase two SPIA's from two separate companies 12 years ago with an inheritance. Those monthly payments, along with my SS, pretty much cover all my basic monthly expenses. In two years I'll have everything back that I bought them for. I will keep getting those payments for the rest of my life. The major part of those payouts are tax free because they were purchased with after tax money. I do not need my IRA's, Roth IRA or other investments I have to live on. I sleep pretty well at night.

Key here, is that it was 12 years ago, when interest rates were comparatively speaking to now quite heavenly, so the payout is much better.

[Dot57]

I purchased a variable annuity from my FA about 20 years ago as a tax shelter. It is now nearly 1/3 of my portfolio at $800k. The cost basis is $360k. I switched FAs and they moved the annuity into a Vanguard product to minimize expenses. The FA advised that I also change the allocations in the annuity to 100% bonds to reduce the growth rate as much as possible. His logic was that I should begin selling off portions each year and reinvest so it would be all ‘converted’ when I reach 70 1/2 and need to begin taking withdrawals from my IRA. I did not heed that advice and have instead been rolling over IRA money each year into a Roth. Last year I left the FA and am self managing my portfolio via Index funds. Vanguard sold off the annuity to TransUnion and I’m unclear what my strategy should be with this annuity. I turn 65 next year and am still earning income and don’t anticipate needing the money in that annuity. I’m considering leaving it in there for my kids to deal with after I’m gone. What are some other recommendations?

[ychuck46]

Quote:

Originally Posted by finnski1 You're not missing anything

Annuities are designed to enrich only the provider of the annuities. Stay far away from them and their high fees and surrender costs, etc. Structure your own annuity if you want that with a good index fund or two coupled with a ladder of CDs. There; I just set up your annuity for you and you don't have to pay ridiculous fees for doing so, rather you keep 100% of your money for yourself.

[almost there]

Quote:

Originally Posted by ychuck46 Annuities are designed to enrich only the provider of the annuities. Stay far away from them and their high fees and surrender costs, etc. Structure your own annuity if you want that with a good index fund or two coupled with a ladder of CDs. There; I just set up your annuity for you and you don't have to pay ridiculous fees for doing so, rather you keep 100% of your money for yourself.

Agree, most are terrible. But to say all are "bad" isn't the case.
Timing is also key. Now, it not a good time at all.
Am not aware of any off the shelf annuities now that are even worth looking at.