Annuities Guide

[ShokWaveRider]

Thanks, I read through the whole document. Great writing, and I agree with your comments of suitability on the last 2 products.

[JRon]

Well Done!

[Go-NoGo]

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Originally Posted by audreyh1 Maybe the moderators can create a sticky thread with links to all your papers. Very valuable resource.

+1

These are great resources for those not familiar with the terms and pros/cons of these financial instruments.

Nice work!

[sengsational]

Quote:

Originally Posted by audreyh1 Maybe the moderators can create a sticky thread with links to all your papers. Very valuable resource.

Several other of Rick's papers are in the FAQ forum, so I added this one as well.


https://www.early-retirement.org/for...ml#post2518630

[38Chevy454]

Thanks for this guide. I really have no desire to ever buy or hold an annuity, but this is good information to help anyone. It just confirms my choice to stay away from them.

[sengsational]

I'm not sure it's mainstream enough to qualify for inclusion, but I know of a possible use for one of the better variable annuities (no commission, low expense wrapper on low expense funds like those sold by Fidelity, and formerly Vanguard).

If you have kids going to college, you can get a discount if your after-tax bank account is not too big; the FAFSA "expected family contribution" is based on the sum of after tax (but not 'retirement') savings. Schools call them 'scholarships', but they're basically discounts off the list price, based on expected family contribution. Through the purchase of a variable annuity, funds become 'retirement assets' and so the discounts become available as the after tax portfolio gets below a certain amount.

Given favorable annuity rules (no surrender fee and no need to ever annuitize) the negative is that it's FIFO (pay tax on all gains to uncover the original contribution), and not getting the favorable tax treatment of qualified dividends and capital gains. Those negatives might not outweigh the benefit of getting a discount on higher education, especially if you're funding multiple kids at high cost schools.

[jazz4cash]

Thanks OP. Very well done and easy to understand. Should have read this sooner but it confirmed my decision to pursue a MYGA today.

[Dd852]

Really useful. My mother is currently ill at 84 and asked me, finally, to take a look at her finances.... nearly everything in variable annuities! Too late to do anything about it now, but at least I understand better what it is she was sold. Irritating and I’m sure very costly over the years, but she never was one to take advice from family members!

[OldShooter]

Quote:

Originally Posted by Dd852 Really useful. My mother is currently ill at 84 and asked me, finally, to take a look at her finances.... nearly everything in variable annuities! Too late to do anything about it now, but at least I understand better what it is she was sold. Irritating and I’m sure very costly over the years, but she never was one to take advice from family members!

If she was sold unsuitable investments you can get the purchases cancelled. IMO it's worth a call to your state attorney general. Insurance companies are constantly getting sued for this in class actions and losing. Allianz and Prudential come to mind.

When I took over my mom's finances I found a ticket marked "unsolicited" to purchase a Dreyfus muni fund. At that time her income was so low that I didn't even file tax returns. Obviously there was a Dreyfus sales contest going on. I didn't pursue it because it was not big bucks but an unsuitable variable annuity is a bigger deal.

[38Chevy454]

Quote:

Originally Posted by Dd852 Really useful. My mother is currently ill at 84 and asked me, finally, to take a look at her finances.... nearly everything in variable annuities! Too late to do anything about it now, but at least I understand better what it is she was sold. Irritating and I’m sure very costly over the years, but she never was one to take advice from family members!

Quote:

Originally Posted by OldShooter If she was sold unsuitable investments you can get the purchases cancelled. IMO it's worth a call to your state attorney general. Insurance companies are constantly getting sued for this in class actions and losing. Allianz and Prudential come to mind. When I took over my mom's finances I found a ticket marked "unsolicited" to purchase a Dreyfus muni fund. At that time her income was so low that I didn't even file tax returns. Obviously there was a Dreyfus sales contest going on. I didn't pursue it because it was not big bucks but an unsuitable variable annuity is a bigger deal.

Is there any statute of limitations type factor? It seems in Dd852's case the annuities have been in place for several years at least. Just curious if something that wasn't recent could still be pulled back and cancelled?

[Bruno]

I found out about Annuities once I got the contracts. The problem was my FA who bought them for me, sent me the contracts a couple months after I signed them. When I called to ask about them I was told you only have 30 days to review and cancel them. I was past the limit. Lucky for me only one of them was a index annuity. The other two were MYGA. I have two more years to get out of the Surrender charges on the Jackson.

[OldShooter]

Quote:

Originally Posted by 38Chevy454 Is there any statute of limitations type factor? It seems in Dd852's case the annuities have been in place for several years at least. Just curious if something that wasn't recent could still be pulled back and cancelled?

It have no idea but I also do not try to prejudge things like this. AFIK all state attorneys general are elected, so all will have people specifically charged to help voters citizens who have been wronged. Even if there is nothing to do legally, no insurance company likes coming to the attention of the AG's office so even a nasty AG letter might make something good happen.

[Dd852]

Quote:

Originally Posted by OldShooter It have no idea but I also do not try to prejudge things like this. AFIK all state attorneys general are elected, so all will have people specifically charged to help voters citizens who have been wronged. Even if there is nothing to do legally, no insurance company likes coming to the attention of the AG's office so even a nasty AG letter might make something good happen.

Thanks. She bought them quite a while ago; she had no mental issues and held a PhD (though not in anything related to finance) - I think it would be impossible to argue she didn’t make a conscious choice.

[OldShooter]

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Originally Posted by Dd852 Thanks. She bought them quite a while ago; she had no mental issues and held a PhD (though not in anything related to finance) - I think it would be impossible to argue she didn’t make a conscious choice.

Admittedly this is a long shot. But the question is not whether she was competent to make the decision. The question is whether she was sold an investment that was unsuitable. The seller is presumed to have more expertise than the buyer and it is legally on him/her to not sell unsuitable investments.

On the security side, a Series 7 registered representative is held to the suitability standard. For example, putting a person with low income heavily into tax-free munis or Argentine bonds would probably be viewed by a court as unsuitable. On the insurance side I know less, but I read often enough about companies like Allianz and Prudential having to cough up because they violated this standard.

It doesn't cost anything to try IMO. All the AG can tell you is "Sorry, Charlie."

[pb4uski]

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Originally Posted by OldShooter Admittedly this is a long shot. ...

Sounds more like a wild good chase to me.

[LRDave]

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Originally Posted by pb4uski There is a flavor of SPIA that also deserves mention as it is sort of in between a MYGA and a life-contingent SPIA and that is a period certain SPIA where the benefit payments are fixed for a defined period of time... you pay the insurer a single premium and they pay you $x per month for y years. The IRR usually isn't very attractive but it is available. It is similar to the MYGA in that the benefit payments are a mix of principal and interest and are not dependent on your still being alive.

pb4uski: Some the money DW has in her TIAA Traditional 403b must be annuitized. One option is a Transfer Payout Annuity and is as you describe above. The portion that must be annuitized goes in and is paid out over ten annual payments. On the TIAA website you can estimate the payout (depending on when you start of course...). If I plug the payment into the TPA and then the 10 payments out using their estimated annual payment into Excel IRR function, I am getting IRR=3.49%.

Is that a poor IRR in your esteem? Am I thinking incorrectly or is my calculation off?

[pb4uski]

Not at all... IMO that is a great IRR. So each annual payment is 12.02% of the premium?

[LRDave]

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Originally Posted by pb4uski Not at all... IMO that is a great IRR. So each annual payment is 12.02% of the premium?

Yes - almost exactly.

[Luvtoride]

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Originally Posted by AtlasShrugged All, I’m back with another one of my guides. This one is on annuities. If you've ever wondered how annuities work or if you are currently considering one, you may be interested in this guide. Similar to my other stuff, I’ve tried to write about them as objectively as possible, which is a bit more challenging with annuities. The guide is a little long at 17 pages because it describes the 5 major categories of annuities including: 1)Multi-Year Guaranteed Annuities (aka, MYGAs) 2)Single Premium Immediate Annuities (aka, SPIAs) 3)Deferred Income Annuities (aka, longevity insurance) 4)Variable Annuities 5)Equity-indexed Annuities (aka, indexed annuities) If you don’t want to tackle the whole thing, perhaps check out the type of annuity that may be of interest to you. For example, some of you may be interested in learning more about the potentially “good” kind of annuity … Single Premium Immediate Annuities or SPIAs. I hope you find this guide helpful. Here’s the link. https://www.dropbox.com/s/g7sqh7ud7b...Guide.pdf?dl=0 Rick

Rick, the link didn’t work. Was it moved somewhere in the ER.org space? Thanks.

[RetireeRobert]

Quote:

Originally Posted by AtlasShrugged All, I’m back with another one of my guides. This one is on annuities. I hope you find this guide helpful. Here’s the link. https://www.dropbox.com/s/g7sqh7ud7b...Guide.pdf?dl=0 Rick

Link doesn't work--at least now, or for me?