Are all Annuities BAD?

[Chuckanut]

What is the story? The image quality is illegible. Inflation requiring more money to retire? Or good markets yielding better returns?

All the ads are from the same company. From 1950 to 1960 the amount of annuity payments has to increase by 50% for the guy to be able to retire in comfort. Hopefully, his SS payments are helping him keep up with the increasing cost of living.

I am not anti-annuity. They have their place in some retirement plans. But they are not 'risk free'. They are subject to losing buying power. No surprises there.

 

[pb4uski]

What's the math behind that?
I don't understand your pattern of 3 then 7 then
Generally, you suffer inflation for a few years & then "catch up" with a fresh annuity coming online?

In practical terms, how many years can you defer - do they offer unlimited choice in delaying the start?

I suppose you could also keep buying an immediate annuity every X years using a ladder of TIPS maturing to give a real return that pays for them. But that does not satisfy the usual desire to buy an annuity so you are done with such financial rigamorole.

I've seen a couple abbreviations that I don't quite recall - What's a "MYGA?" etc?

The 3 years and 7 years were just to average things out rather than have a deferred annuity each year... so you get a "raise" that equates to 3.5% annually every few years.

If you were anal, you could buy payout annuities deferred 1,2,3 4,5 et al years with the payout equal to 3.5% of the previius year's total.... subject to minimum premium requirements of course. You can buy deferred annuities with a wide variety of deferral periods in one-year increments... see immediateannuities.com

The TIPs/buying SPIAs each year strategy that you advocate would also work but would also be impacted by other changes in SPIA pricing that may be favorable or adverse.

The whole idea is that if inflation protection of a single SPIA is a concern that one can cobble together a combination of a SPIA and a cascade of deferred annuities to provide increasing benefits to help mitigate that risk.

 

[OldShooter]

... The whole idea is that if inflation protection of a single SPIA is a concern that one can cobble together a combination of a SPIA and a cascade of deferred annuities to provide increasing benefits to help mitigate that risk.

Here's a thought:

For that cascade to be beneficial, the inflation forecasts over the chosen long period must be in the ballpark. I think this is a very high hurdle.

For the "Wellesley Strategy" to be effective, forecasts of portfolio growth must be in the ballpark. Though arguably not easy, I think this is easier than predicting inflation.

 

[ERD50]

ref to this earlier post:

https://www.early-retirement.org/forums/f28/are-all-annuities-bad-109507.html#post2616484

All the ads are from the same company. From 1950 to 1960 the amount of annuity payments has to increase by 50% for the guy to be able to retire in comfort. Hopefully, his SS payments are helping him keep up with the increasing cost of living.

I am not anti-annuity. They have their place in some retirement plans. But they are not 'risk free'. They are subject to losing buying power. No surprises there.

Ahhh, I missed that subtlety! I was just looking at the low $ amounts that people retired on back then as an illustration of inflation of now vs then.

I missed that the same company jacked up the example payments by 50% (from $200 to $300) in 10 years in their ads. But that first couple from 1950 is still getting their $200 monthly from their annuity. With probably another 10~20 years to go!

-ERD50

 

[RetMD21]

Low cost annuities can make sense for some, OTOH folks can be misled into thinking that indexed annuities are risk free way to get market like returns which is not the case.

An analysis performed by Cannex, a market research firm, found S&P 500-linked indexed annuities have an estimated average seven-year return of 3%, on par with competitive rates of 3% to 3.1% for multi-year-guarantee annuities over the same period.

https://www.investmentnews.com/inde...rmed by Cannex,annuities over the same period.

 

[Ncc1701]

IMHO,

1. ALL Variable Annuities are indeed bad. There is no justification for buying one.

2. If you get a fixed annuity with a competitive interest rate and you are OK with deferring paying taxes on the interest then that is not so bad.

3. If you buy an Income annuity that helps you to have enough guaranteed income so that you can meet your essential expenses, then that is not such a bad thing, especially for those that are spendthrifts or for those that are very risk averse.