Annuities..You need one..Really

[MasterBlaster]

A friend of mine got into a Fixed Index Annuity last year. He suggested I do the same, as I would like to be able to count on taking out $800 to $1200, a month in about 10 to 15 years time. He said he gets 8% guaranteed interest yearly and they gave him a bonus to sign up. I said, No way....so he showed me his statement...and there it was! Everything he said.....and he gets another 8% this year. Now I am thinking I should do the same thing. Have any of you heard of a Fixed Index Annuity?

I suspect that to actually get the 8% interest you are required to annuitize the portfolio at their crappy rates and their crappy payout. If you take the money out any other way you'll get the crappy rates shown in the appendix.Either that or it's only good for one contract cycle. The next contract cycle will be much less generous cause they have you locked in.

You need to read all of the fine print here. they are designed to confuse you. The reality (I suspect) isn't what it appears to be.

also, This thread is discussing (single payment) immediate annuities. You are speaking of deferred annuities which, in my opinion, should be avoided like the plague. they are just a bad deal.

 

[MasterBlaster]

A SPIA allows for a more aggresive (remaining) Nestegg

I like the concept of a (low cost provider) SPIA as a baseline along with SS, to keep you out of poverty or to provide a base income level.

The advantage of the SPIA route is that since you have this certain base income level, you can then have your remaining nestegg in more aggressive assets, or take a more aggressive withdrawal rate, than you otherwise could.

So even though the SPIA pays less than a traditional balanced portfolio. The SPIA plus (more aggressive) portfolio, almost certainly allows you to have a higher spendable income when you want it. there is less need to maintain some large nestegg for longevity risk. You can spend the nestegg down because you always have that base income.

 

[dgoldenz]

I suspect that to actually get the 8% interest you are required to annuitize the portfolio at their crappy rates and their crappy payout. If you take the money out any other way you'll get the crappy rates shown in the appendix.Either that or it's only good for one contract cycle. The next contract cycle will be much less generous cause they have you locked in.

You need to read all of the fine print here. they are designed to confuse you. The reality (I suspect) isn't what it appears to be.

also, This thread is discussing (single payment) immediate annuities. You are speaking of deferred annuities which, in my opinion, should be avoided like the plague. they are just a bad deal.

The 8% is the increase in the income account value, which is just used to calculate the actual payout. It's not a "real" 8% because you can't just walk away with the money. There are two separate "accounts" inside an FIA with an income rider - one is the cash value accumulation account, which you can walk away with at the end of the term, and one is the income account, which is used to figure out the payout if you choose to take the lifetime income option instead. Taking the lifetime income option is NOT annuitizing. There is a difference. I explained this in one of the posts someone else referenced above.

 

[MasterBlaster]

In your words then...

The income account is a financial gimmick that the insurance Co sets up. That's the account that gets "psuedo" annuitized - or whatever you want to call it for your "lifetime income stream"

And yes it is indeed different than taking the cash value and buying a real SPIA.

In any case the buyer needs to be vary vigilant that what they think they are buying is indeed what they are getting.

The linked article by Scott burns said it all:

Real Money vs. Not-Real Money - Registered Investment Advisor

 

[dgoldenz]

In your words then...

The income account is a financial gimmick that the insurance Co sets up. That's the account that gets "psuedo" annuitized - or whatever you want to call it for your "lifetime income stream"

And yes it is indeed different than taking the cash value and buying a real SPIA.

In any case the buyer needs to be vary vigilant that what they think they are buying is indeed what they get.

The linked article by Scott burns said it all:

Real Money vs. Not-Real Money - Registered Investment Advisor

Pretty much. It's not "made up" though because if you die, some companies will pay out the full income account value to your beneficiary over 5 or 10 years, so the number still does matter. With most products, they can still take the cash accumulation value immediately instead of the income value paid out over a longer period of time.

When you annuitize, you lose everything if you die a day later and don't have a period-certain annuity. With the income rider, if you start withdrawing money with the guaranteed income and die a day later, your beneficiary still gets paid out the full cash accumulation account value. That can be a huge difference for someone with a large amount of money in the annuity. The money withdrawn draws down the cash accumulation value in an amount equal to how much you took out. Once the accumulation value reaches $0, you still get the lifetime income payout, there is just nothing left to a beneficiary if you die from that point on. This is much easier to explain on paper, but hopefully you can see what I'm getting at.

 

[East Texas]

When I finally get my USAA SPIA, it will be joint annuitant with 20 years guaranteed. That way if I die first, the payments continue with my spouse. If we both die before 20 years, the daughter gets what's left.