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Old 06-04-2021, 03:34 PM   #21
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OP, since the friends have been with this advisor for 20 years and they are scared of a market downturn, I suspect there is little you can do. Financial products sold out of fear are rarely the right answer. But, I suspect that is were your friends are headed. If you have any influence, I might try and educate them. Recommend an investing book. I doubt you can stop the annuity sale.
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Old 06-04-2021, 03:34 PM   #22
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I'd say tell them to go ahead and buy the annuity. The FA makes a fat commission, the wife is happy because "you can't lose money with an annuity" and when the market dips, which it will, you are not the monster that told them to stay the course in stocks. Giving financial advice to friends is a fool's errand.
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Old 06-04-2021, 04:17 PM   #23
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Just saying "annuities are bad" aren't going to hold up against an annuity salesman, especially if they think they want them.

Suggest that they should understand how the annuity works, and how they will get paid in various market scenarios. And how much they are paying in fees.
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Old 06-04-2021, 06:01 PM   #24
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They have asked for my opinion because I have known them for many years and was in banking finance for many years. But as someone pointed out, if I say no way and the market crashes there’s going to be someone very upset with me. Very fine line here!
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Old 06-04-2021, 06:47 PM   #25
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Of course, people can and probably will lose with a fixed annuity thanks to inflation. They lose buying power. People need to think in terms of loaves of bread, not dollars or euros or whatever.

But...
Quote:
My friend’s wife does not want to go through another crash. They are both late sixties.
Quote:
if I say no way and the market crashes there’s going to be someone very upset with me.
Somehow I missed the significance of the above statements. Perhaps refer them to humbledollar.com and let them take responsibility for whatever they decide.
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Old 06-04-2021, 07:59 PM   #26
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Quote:
Originally Posted by Rocky mtn high View Post
They have asked for my opinion because I have known them for many years and was in banking finance for many years. But as someone pointed out, if I say no way and the market crashes there’s going to be someone very upset with me. Very fine line here!
Its not like stocks and annuities are the only investments out there. They can reduce their stock exposure either in whole or in part... knowing that at least for now what they reinvest in will likely provide negligible return... but sometime return of capital is more inportant than return on capital.

If they haven't taken SS yet then they could use some of the proceeds from stock sales to delay SS... essentially using some of that money to buy a COLA adjusted annuity from the federal government.

The could even just park it in a CD ladder if they really want safe for a while.
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Old 06-04-2021, 08:09 PM   #27
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Originally Posted by Rocky mtn high View Post
They have asked for my opinion because I have known them for many years and was in banking finance for many years. But as someone pointed out, if I say no way and the market crashes there’s going to be someone very upset with me. Very fine line here!
But I would not state it that way. That's setting yourself up to be the target.

Instead, show them what has happened to a conservative AA in past market crashes (you don't "lose it all"), and how you would draw from the fixed side for expenses and would not need to sell stocks at lows. And you would probably buy more stocks at those lows as you re-balance.

And then, those stocks would recover, and you'd be in very good shape because you bought low.

Then show them what happens to the buying power of an annuity if we get high inflation like the 80's. In 1990 their annuity could only buy ~ 60% of what it could 10 years earlier, that's like losing ~ 40%, which is probably more than a conservative AA portfolio dropped in the past few "crashes". And inflation hasn't turned into deflation, there was no 'recovery', so it just keeps getting worse.

At age 60, they could have several decades of inflation ahead of them.

If they still want to go with their FA and annuity, that's up to them. But you armed them with information rather than advice, and it's information they can independently verify, so you are not the target anymore.

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Old 06-04-2021, 08:27 PM   #28
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Individual stocks can become worthless in a downturn. We had that happen in 1987, with some stock my husband had bought, through an "adviser," before he and I met. The affected company folded and the stock simply didn't exist any more. Fortunately, this was not retirement money, though it was a significant amount.

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I am always a bit astounded when I hear somebody say 10 years that after the 2008 crash or the 2001 tech bubble fiasco that they 'Lost all their retirement money'. They only lost if they sold at fire sale prices. .
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Old 06-04-2021, 08:32 PM   #29
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"Are ALL annuities bad?"

No. Especially if one puts only some limited portion of assets into one, and if one wants some guarantees (risk abatement) on some portion of one's assets.
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Old 06-05-2021, 03:28 AM   #30
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I'd be curious whether the FA had given advice on SS claiming. If by chance, they had advised to claim SS early and now want to sell an annuity, that's a smoking gun for a shark IMO.
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Old 06-05-2021, 05:11 AM   #31
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I do check our annuitization hurdle quarterly https://www.financialplanningassocia...t%20Income.pdf
That is from 2007, how can I never have heard of it before now?

But it does not talk about how fast a falling portfolio might accelerate.
If the portfolio fell 10% since the last check, and you are now only 10% above the Annuity Threshold -- should you annuitize now or wait to the next check (when it may have fallen 15% so you are screwed)? The advice to check more than once a year is not very helpful.

In practical use, you would have to set a rule that when your portfolio value falls to Annuity Threshold + X% Portfolio Value, you annuitize and take the X% higher income for life.

The X% would be based on your risk aversion, picking an historical Y% chance that the portfolio would not fall more than X% before the next check. Plus a time lag to sell out & make the purchase.

If you must pay capital gains taxes when cashing out to buy the annuity, your Threshold will be that much higher, and a bit painful to plug into a tax calculation.
Right now a 75 year old woman paying $500,000 will get $37,428 a year.

So maybe at some age, or when your portfolio drops to a critical low value above your Threshold, an amount equal to your Bare Survival Threshold amount, in your ROTH, needs to be re-allocated to cash.

Of course, "dynamic strategies" all require your money to be in tax-advantaged accounts so you can swap without paying taxes.
So I have to guess at a relatively fixed allocation.

Why does the board's dictionary software think that "annuitize" is the wrong spelling?
FWIW, it also rejects "annuitise."
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Old 06-05-2021, 05:20 AM   #32
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Originally Posted by ERD50 View Post
If they still want to go with their FA and annuity, that's up to them. But you armed them with information rather than advice, and it's information they can independently verify, so you are not the target anymore.
-ERD50
Except that when people are upset they often shoot the messenger anyway.
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Old 06-05-2021, 05:23 AM   #33
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In our overall plan is the possibility of adding a SPIA between age 80-85 or so depending on our overall health at the time and the state of our portfolio That would be the only type of annuity we would ever consider. And who knows, by then perhaps inflation indexed annuities will be available again.

https://www.bogleheads.org/wiki/Immediate_fixed_annuity
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Old 06-05-2021, 05:29 AM   #34
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https://www.kitces.com/blog/how-dela...erminvestment-
or-annuity-money-can-buy/

and

https://www.kitces.com/blog/the-asym...ty-benefitsas-
the-ultimate-hedge/

those links formatted wrong but you can just copy & paste.
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Old 06-05-2021, 05:37 AM   #35
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optimizes SS filing date for maximum expected total benefits:
https://opensocialsecurity.com
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Old 06-05-2021, 05:38 AM   #36
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Quote:
Originally Posted by Bongleur View Post
https://www.kitces.com/blog/how-dela...erminvestment-
or-annuity-money-can-buy/

and

https://www.kitces.com/blog/the-asym...ty-benefitsas-
the-ultimate-hedge/

those links formatted wrong but you can just copy & paste.
Would you please provide us with a summary of these links so members know what to expect or look for without having to click on them?
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Old 06-05-2021, 05:49 AM   #37
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Quote:
Originally Posted by Rocky mtn high View Post
They have asked for my opinion because I have known them for many years and was in banking finance for many years. But as someone pointed out, if I say no way and the market crashes there’s going to be someone very upset with me. Very fine line here!
Their advisor is more salesman than advisor. The biggest interest is his payoff after talking your friends into the deal.

You're in a difficult position as you've mentioned. I think the best advice is to present them with links and other general advice, and try to inject calm as the FA injects FUD. Then it is their decision.
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Old 06-05-2021, 06:38 AM   #38
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Keep in mind that one can easily set up a SPIA-like "annuity" by just plunking a bunch of money in Wellesley or some similar conservative balanced fund and setting up a SWR monthly automatic redemption that goes to your bank account just like a monthly annuity benefit would and don't ever look at it.

We did this for my BIL's elderly mother when she was 90 or so. She rarely looked at her account statement, but the automatic redemption showed up in her checking account every month like clockwork. When she was 97 and needed to go into a nursing home and they were going over her financial resources with the nursing home, her daughter erroneously referred to it as her Vanguard "annuity".

While it isn't guaranteed like an annuity is (subject to insurer and guaranty fund solvency) as long as the benefit amount is a safe withdrawal amount it is unlikely to ever fail. The benefit is that if the money is needed for some reason it can be accessed... can't do that with a SPIA. If Wellesley does well you can periodically "reset" the monthly redemption and increase it for inflation... you can't do that with a SPIA.
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Old 06-05-2021, 08:06 AM   #39
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Originally Posted by Chuckanut View Post

I am not a fan of annuities overall. But, there is a psycohogical aspect to investing that can't be overlooked. Annuities provide an income floor that can be very comforting when the financial markets are negative or very volatile.

I am always a bit astounded when I hear somebody say 10 years that after the 2008 crash or the 2001 tech bubble fiasco that they 'Lost all their retirement money'. They only lost if they sold at fire sale prices. An annuity income floor may keep some people from doing that. IMHO, that is their main benefit for many people.
If the goal is to accumulate money, most of the comments made in this thread are likely right about annuities. If a person feels their life would be better by investing in a stream of income however that is a wise investment.

I do believe that most of the comments suggesting against annuities/pensions are based upon a real concern that the purchaser is not schooled enough to evaluate the alternatives. This is an important and legitimate suggestion. But as pointed out by Chuckanut, there can be more to the decision than simply investment return. Piece of mind has a value too.

I have wondered from time to time if some of the posters that speak against annuities/pensions turned down a higher paying job during their career, concerned it would not work out. Or elected to rebalance their portfolio moving away from stocks?

We all have a comfort zone, I believe.
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Old 06-05-2021, 08:14 AM   #40
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Well, we don't know what the OP's FA is proposing.... but I'm betting that it is NOT a SPIA.

If the FA is good it might be a MYGA/SPDA as a CD substitute.

But it would not be at all surprising if it was a VA.
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