Anybody buying variable annuities?
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REWahoo
Give me a museum and I'll fill it. (Picasso) Give
You came to the wrong place for recommendations on which variable annuity to purchase. The insurance company and the salesman are the only sure winners on that product.
Barron's of May 28 covered their "Top 50 annuities". I haven't read the piece but you may find it useful, and you can probably get the issue at your local library.
The fees will negate any "safety" you might believe you are getting. The annuity itself has a high fee (1-3%), the individual funds have high fees (1-2%) and then you pay for the rider to eliminate the risk of principal loss (~2%). The protection usually also stipulates that you must convert your "safe" principal into a SPIA at a future, yet-to-be-determined rate. Your supposed "safe" investment is really just a giant fee machine for the insurance company.
Go to Scott Burns' website. He had a recent article describing the wonders of variable annuities.
These things are total losers for the purchaser. The annuity salesperson will typically pocket 10%. Of course, the firms also make out big.
I don't know if there is anyone that regularly comes to this forum that will say how happy they are with their purchase. Various people have lamented their purchases and the high cost of escaping the contract. We do, however, regularly have annuity trolls show up saying how wonderful they are.
Go to Scott Burns' website. He had a recent article describing the wonders of variable annuities.
These things are total losers for the purchaser. The annuity salesperson will typically pocket 10%. Of course, the firms also make out big.
I don't know if there is anyone that regularly comes to this forum that will say how happy they are with their purchase. Various people have lamented their purchases and the high cost of escaping the contract. We do, however, regularly have annuity trolls show up saying how wonderful they are.
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VA's are complex and have expensive fees. We're mostly DIY'ers happy to avoid the fees. You might prefer conservative balanced funds or more bonds in your portfolio. Watch your portfolio total, not the individual pieces. They all work together.
Midpack
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I'd never buy one, but FWIW Pros and cons of variable annuities - CSMonitor.com
I don't plan to ever buy any annuity, but I certainly wouldn't rule out a SPIA (or actually several to spread around insurer default risk) one day under certain circumstances as part of our "plan B."
I don't plan to ever buy any annuity, but I certainly wouldn't rule out a SPIA (or actually several to spread around insurer default risk) one day under certain circumstances as part of our "plan B."
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You know that question you asked nearly eight years ago about equity indexed annuities?
EIAs and VAs still suck.
Thanks for the loving smack across my head
I appreciate your responses re VA's. My problem remains.Given the history and experience of the group, I would appreciate ideas that meet the issue stated earlier. Good Investment ideas for a portion of assets that take risk off the table. Thanks
I appreciate your responses re VA's. My problem remains.Given the history and experience of the group, I would appreciate ideas that meet the issue stated earlier. Good Investment ideas for a portion of assets that take risk off the table. Thanks
Midpack
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
At present, there are no good ways (that I know of) to take risk off the table with much of an outlook for real return. I'd buy a SPIA before a VA under any circumstances I can think of...but as your OP noted, now is a horrible time to buy a SPIA if you can afford to wait (most likely for years).
frayne
Thinks s/he gets paid by the post
The last sentence in the pros and cons of annuities article says it all.
As you can see, everything is not what it appears with an annuity. You need to read all of the fine print before investing a dime.
As you can see, everything is not what it appears with an annuity. You need to read all of the fine print before investing a dime.
Can you more precisely describe what kinds of risk you are worried about? Inflation risk? Fluctuations of the value of your investment (even if, long term, the particular investment has always gone up?). Risk of default? Currency risk?
At the risk of stating the obvious: The closer an asset comes to "zero risk", the lower the returns will be. The most popular way to reduce risk to your overall portfolio's value and to grow it is to assemble a variety of different assets that are not positively correlated in the way their value changes in response to various changes in the economy and market (interest rates, exchange rates, stock values, etc). Each asset class my be "risky" (that is, volatile) in itself (thus, normally, generating higher overall returns) but the overall portfolio value remains relatively stable. This strategy sometimes falls short. Few assets did well during the 2008 downturn. But over time it has produced good results.
If you want a single investment with very low risk (and, of course, low returns as well), you could invest in short-term CDs, or those that allow you to bump up the rate during the term of the CDs. You can get an Ally Bank 4 year "Raise your Rate" CD with a 1.45% APY right now, and you can call to get the rate increased twice during that term if rates go up. They have only a 60 day interest penalty for early withdrawal. It's a pathetically low interest rate and you'll probably lose ground to inflation--but it's not a bad choice in the present environment.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
How do you think that a VA will get you off the roller coaster? What VA subaccounts are you planning to use? In most cases the subaccounts are equity funds or bond funds so all you will end up with is a different roller coaster with high fees.
There is no way to avoid risk these days. You could invest in CDs or money market fund or a short term bond fund and have the illusion of no risk, but the unseen risk with those investments is that since inflation exceeds returns the spending power of your money is declining. In order to earn returns that exceed the inflation rate you need to take on more risk, and those riskier investment fluctuate in value.
From Fidelity's web page:
"
'Safe' investments that are actually risky
BY penelope wang,
Money Magazine — 06/05/12
...
Index annuities
The pitch: Earn the returns of stocks with no risk of losing money, thanks to the underlying insurance on your investment. Your money will also grow tax-deferred, and you can convert to an annuity later on.
The reality: These are complex policies that don't deliver what you might expect.
Instead of mirroring a stock market index, the annuity's returns are capped -- recently many policies limited gains to 3.5% annually (the specific cap can change).
Worse, those returns don't include dividends, which have historically accounted for the bulk of the market's long-term returns.
Index annuities also incur high costs. And unless you hold for 10 years or more, you'll have to pay steep surrender charges to sell -- as much as 20% to start."
"
'Safe' investments that are actually risky
BY penelope wang,
Money Magazine — 06/05/12
...
Index annuities
The pitch: Earn the returns of stocks with no risk of losing money, thanks to the underlying insurance on your investment. Your money will also grow tax-deferred, and you can convert to an annuity later on.
The reality: These are complex policies that don't deliver what you might expect.
Instead of mirroring a stock market index, the annuity's returns are capped -- recently many policies limited gains to 3.5% annually (the specific cap can change).
Worse, those returns don't include dividends, which have historically accounted for the bulk of the market's long-term returns.
Index annuities also incur high costs. And unless you hold for 10 years or more, you'll have to pay steep surrender charges to sell -- as much as 20% to start."
Brewer posted a link to this article several months ago.
How To Create Your Own Indexed CD or Equity Indexed Annuity On the Cheap
The lead-in to the article:
I thought it was an interesting approach that might be a good and much cheaper alternative for some people considering Equity Indexed Annuities and other expensive products.
Thanks again, Brewer.
How To Create Your Own Indexed CD or Equity Indexed Annuity On the Cheap
The lead-in to the article:
For an extremely risk-averse investor it's a method to participate in the equities market while risking no losses. You'd give away some of the "upside" potential, and you might lose some buying power to inflation, but if you start with $100K, you're guaranteed to have at least $100K 18 months later.
I thought it was an interesting approach that might be a good and much cheaper alternative for some people considering Equity Indexed Annuities and other expensive products.
Thanks again, Brewer.
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If you want to take risk off the table, then buy a single-premium immediate annuity. You could buy one now, or you could wait a few years to see how your retirement portfolio is doing.
If you want to take risk off the table then you'll pay for the privilege of the insurance. That's why returns are so low.
If you're trying to chase a higher yield in an annuity, then you're going to get that yield only after you pay a bunch of fees & expenses. If we were going fishing, those fees & expenses would be called "bait" and you'd be gnawing on the hook.
brewer12345
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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As a diversifier and a generally lower risk (and modest return) option, I have a chunk of money invested in merger arbitrage funds. A detailed explanation of these things can be found here: Life, Investments & Everything: Picking Up Nickels In Front Of A Steamroller
I must disagree. There is a free lunch but only if you don't buy the VA the guy's selling.
Huston55
Thinks s/he gets paid by the post
Here's another recent article with some actual numerical comparisons (we like numbers 
). Bottom line is that even very low fee VAs don't beat other more traditional investments.
What About Cheap Variable Annuities? | The White Coat Investor- Investing And Personal Finance Information For Physicians, Dentists, Residents, Students, And Other Highly-Educated Busy Professionals
). Bottom line is that even very low fee VAs don't beat other more traditional investments.What About Cheap Variable Annuities? | The White Coat Investor- Investing And Personal Finance Information For Physicians, Dentists, Residents, Students, And Other Highly-Educated Busy Professionals
jerome len
Full time employment: Posting here.
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If you still think you need any annuity, go to Vanguard, their fees are amogst the lowest. Then with interest rates so low, try to spread out the amount you want to put into an annuity over 3 years.....maybe, rates will be better by then and, since you'll be a little older the annuity will pay a small amount more than now.
Security in the form of an annuity is expensive. The guy trying to sell me one had just traded in his Cadillac for a more expensive Mercedes.....that's got to tell you something.
Security in the form of an annuity is expensive. The guy trying to sell me one had just traded in his Cadillac for a more expensive Mercedes.....that's got to tell you something.
I have a VA that I bought a number of years ago from Fidelity. I probably shouldn't have bought it but it hasn't been the disaster described in a lot of the earlier posts. I've since transferred it to Vanguard and now have it in their "VVA Conservative Portfolio" (60% bonds; 40% stocks.) I look at it as protection for my wife should I predecease her. (Our income will drop when I go; therefore she can make up some of it by annuitizing the VA.) If she predeceases me I'll probably use it for charitable purposes and/or to live high off the hog.
That said, I wouldn't touch a VA from anyone other than Fido, VG or TIAA-CREF.
It has grown nicely over the years as I previously had it in more aggressive portfolios.
Just my opinion.
That said, I wouldn't touch a VA from anyone other than Fido, VG or TIAA-CREF.
It has grown nicely over the years as I previously had it in more aggressive portfolios.
Just my opinion.
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packrat44
Thinks s/he gets paid by the post
The only VA I care for is the Veterans Administration.
I'm not sure what you mean by "deferred" VA. In my VG VA (like any VA) the money does grow (hopefully) tax-deferred. The expenses are low for an annuity (but not as low as owning the comparable VG MFs outside of an annuity.) There are no sales commissions or surrender charges. That said, here are the disadvantages of a VG (or Fido or TIAA-CREF) VA compared to comparable mutual funds (assuming you are funding either with post-tax dollars):
- You will pay tax at your normal rate when you withdraw gains from the VA; from a regular MF you will pay only 15% (assuming they are LTCGs.) This, of course, could change depending on what the pols in DC do. Specifically, if you make withdrawals from your VA, you will pay tax at your normal rate on ALL of the money you withdraw until you draw it down to the basis (the amount of after-tax money you originally put into it.) After that the withdrawals are not taxed since you already paid tax on that money. If you annuitize, the monthly payments will be considered to be a combination of return of principal and earnings and you will proportionately pay tax on the earnings portion at your normal rate.
- The expenses are marginally higher.
- You are more limited in the "portfolios" within the annuity than you are with the whole universe of VG MFs. (This doesn't matter to me since I am an index investor and the VG VA has all the portfolios I need.)
- Overall, you have less flexibility and if you really want an annuity sometime, you can still accumulate the money in non-annuity MFs and then go buy an immediate annuity with the proceeds from the MFs.
As I said in the earlier post, it hasn't worked out bad for me but given the opportunity to revisit the decision, I would not buy the annuity and would keep the money in post-tax MFs.
