Annuity w/guaranteed floor PLUS upside potential

[Jer]

I'm new to this site, so please bear with me. I have a very basic question-- is there a reputable annuity product available that does BOTH of the following?
1. Guarantees a minimum monthly lifetime income, starting now;
2. Provides higher income if the stock market does well.

My situation is this. I just retired at 54. Part of my 'nest egg' is my $300k employer pension, which I want to put into a single life annuity that generates immediate monthly income for life.

I can do this through my employer and receive $1,700/mo for life, which is based on a 5.0% interest rate assumption.

However, my 'prospective' financial planner (I haven't signed on with him yet) says I can do better than this. He says there are annuity-like products that will guarantee me the $1,700/mo. for life AND provide upside potential tied to the performance of the stock market. There's a fee for the minimum guarantee, but he says net-net I will still be better off with these products.

I have been unable to find such a product on the web. The closest I've found are "equity indexed annuities", but its not clear that they're available as an immediate annuity, or that their guaranteed minimum payout would match my employer's $1,700, or that the minimum guarantee is for life.

Are any of you familiar with a product that would give me a guaranteed lifetime minimum that matches or beats my employer's, plus a potential upside if the market does well? (I realize there may be tax implications, but I'll deal with those separately).

[DFW_M5]

You might want to check out Manulife's website. See http://www.manulifeusa.com/Marketing/default.aspx They have several types of annunity products and special options that may get you where you want to go and I believe they are one of the better companies that provides such products.

Personally, after evaluating, I have found the cost of most annuity products to be high and until you drill into the fine print, they may appear amazing, but there are usually gotchas/limitations that you need to understand. The benefits for the folks selling these deals attracts some very good sales people that can make very compelling pitches, be careful!

Doug

[mickeyd]

Hey Jer,

There is an annuity product called "Indexed annuity" that many insurance companires sell and it is supposed to have the guarantees of a fixed annuity and the growth potential of the stock market. *If this sounds too good to be true, you'd be correct.

This Indexed annuity is different from the *"Variable annuity" which you may have heard of.

I will not waste your time in trying to tell you about either of these products as in my opinion they are only a good deal for the insurance company and the agent (commission). Remember no one makes any money until you write them a check and you will probably never make any money.

I'm embarassed by the blatent way that this salesman has led you to believe that this is the best thing for you. *I used to be in that business and have seen many sins committed in the name of "solving your problem".

You are probably being asked to pay more for this "guarantee" that you will ever realize. *

Since this sales person is obviously not being completely honest with you, I'd recommend that you not proceed with anything that he/she has to offer.

Finally, if you are dead set on buying an annuity, why don't you look at Vanguard (www.vanguard.com) . *They have about as good a contract as you can get, but investing in indexed Vanguard funds is a much better long term solution for many folks.

[Jer]

Thanks, Doug and MickeyD.

Doug, I checked Manulife's website, and they do have an annuity product with a guaranteed floor plus upside potential. But their guaranteed payout is much less than my employer's, and would be guaranteed for only 20 years (not lifetime).

MickeyD, your cautions are well taken. And I am a fan of Vanguard index funds--- that's where most of my nest egg is, aside from this annuity piece.

I'm still interested in others' responses to my original post.

Jer

[ats5g]

Hey Jer,

I would have a number of questions.

1) Exactly how much is this "fee"?

2) What assumptions is the financial planner using? Is he/she saying something like "using the historical return of 10% for equities, yada yada yada…"? Are these assumptions reasonable? Do any of his projections take into account the fees plus any extra fees he may charge?

3) Exactly how "tied" to the performance of the stock market is this product? How exactly do you participate in the performance of the stock market? Do you only get credited a certain % of the upside? Is this before or after fees?

4) Do/will the extra fees eat up any/most of the stock market gain?

5) Are there any surrender charges? If so, how long do they stay in effect?

6) How (and how much) is this planner compensated?

7) Is this person an actual credentialed CFP, or does he just call himself a FP?

8) Have you checked his/her record with the NASD?

9) Is there a prospectus for you to read to verify what the FP is talking about?

10) How highly rate is the insurance company that is backing your payments?

- Alec

[Jer]

Excellent questions, Alec. Thanks,
Jer

[mccl]

Jer,
I went to a free dinner presentation recently about a product that lets you participatate in the upside of the market, but if the market goes down you don't loose anything (in fact it would provide a 1.5% minimum return). *It turned out to be an Equity Indexed Annuity.

It sounded too good to true, and as I investigated more, it is. *It may be an appropriate investment tool in some situations but it isn't as attractive as the financial advisor's *presentation made it out to be. *The one he was pushing was Sun Life's Keyport Multipoint. *While its provisions were better than most other indexed annuities in terms of caps, participation rates, etc, I decided against it. *I also found out that the advisor's commission would be 10% of whatever amount of money I put into the annuity. *The insurance company has to make that up somehow, as well as make a profit.

Before considering such a product, it is important to understand how they work and the meaning of provisions such as "cap" and participation rate". Also key are the surrender charge provisions, and the way the indexing works. *The indexing method varies from company to company.

If you do a web search on "equity indexed annuities" should find a lot of information, although many of the search hits will be insurance companies and brokers. *Here is one site you could check: *
http://www.efmoody.com/investments/indexannuity.html *

[mickeyd]

Alec mentioned NASD. Are you aware that a person selling an indexed annuity does not have to have a NASD "license"? While you do have to be NASD Series 6 qualified to sell variable annuities, no such requirement is necessary for the indexed annuity. Why? the indexed annuity is only considered an insurance product which means that all that is required is a state life insurance license.

This product was contrived 10-15 years ago so that insurance sales folks who did not have a securites license could have something to talk about related to the stock market. It is my experience that very few sales folks have a complete working knowledge of how an indexed annuity works.

But they do know how to sell the hell out of it. Which is all that is important to them anyway.

[ats5g]

Excellent points by MickeyD. EIA's are considered fixed annuities, not VA's. More links from the NASD:

Understanding Investment Professional Designations

Quote:

Other Terms Used by Investment Professionals Financial Analyst, Financial Adviser (Advisor), Financial Consultant, Financial Planner, Investment Consultant or Wealth Manager are generic terms or job titles used to refer to investment professionals. Anyone can use these terms without registering with securities regulators or meeting any educational and experience requirements.

Equity-Indexed Annuities - A Complex Choice

And one from the SEC (kind of helpful):

Investment Advisers:
What You Need to Know Before Choosing One

- Alec