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Are Variable Annuities Ever a Good Idea?
Old 03-22-2020, 11:44 AM   #1
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Are Variable Annuities Ever a Good Idea?

Are their any circumstances where they are a wise choice?
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Old 03-22-2020, 11:45 AM   #2
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Certainly. If you're selling them.
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Old 03-22-2020, 11:46 AM   #3
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Maybe if your kid is selling them and they will lose their job and have to move back home if you don't buy one?
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Old 03-22-2020, 11:56 AM   #4
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I don't have the same sentiment about variable annuities, but in this bear market without an end in sight, I'm kinda happy that I got suckered into owning a couple of immediate annuities. They do help me sleep better an night.
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Old 03-22-2020, 02:09 PM   #5
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Quote:
Originally Posted by LXEX55 View Post
Are their any circumstances where they are a wise choice?
There might be but they are so few and far between as to be inconsequential... so in short, not any circumstances that I can think of.
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Old 03-23-2020, 09:11 AM   #6
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TIAA annuities are variable and I have only heard positive comments from retirees that hold them. So it is good to avoid words like "all" and "always" when discussing these matters.
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Old 03-23-2020, 09:21 AM   #7
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TIAA annuities are variable and I have only heard positive comments from retirees that hold them. So it is good to avoid words like "all" and "always" when discussing these matters.
Almost for sure these are people who don't understand what they have bought and don't understand that there are better alternatives.

I downloaded the prospectus for a variable annuity one time. 214 pages of fine print! You can be sure that neither the salesperson nor the customer understood all of it. It was quite amusing to do a text search for the word "fee."
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Old 03-23-2020, 09:25 AM   #8
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Originally Posted by OldShooter View Post

I downloaded the prospectus for a variable annuity one time. 214 pages of fine print! You can be sure that neither the salesperson nor the customer understood all of it. It was quite amusing to do a text search for the word "fee."
I did precisely that a few years ago when a co-worker was thinking of buying a variable annuity. I came up with over 3% in annual fees scattered throughout the document he had (prospectus). Nuts!
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Old 03-23-2020, 09:29 AM   #9
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Fidelity, Vanguard and others sell variable annuities that are not the high-commission, high-fee, high-complexity products that give variable annuities the bad name. They are basically one or more of their mutual funds wrapped as an insurance product so to allow for tax 'advantaged' saving.

The reason for buying one might be to allow for tax-free growth, and increase your proportion of "retirement assets". IRA's and 401K's limit the amount you can invest, but you can take after-tax money and buy as much of a variable annuity as you want. So if, say, you were making a bunch of money on your W2, and every additional dollar from your investments was in a high bracket, that might be a reason to move that income off to the future. One of the biggest pitfalls is that you must take out all the gains first (not prorated). So say you had a long-term variable annuity investment and it doubled in size. You'd need to take out half of it, and pay tax on that, before you could get your basis back (tax-free, of course).

And these uncomplicated variable annuities that I'm talking about can be treated as just another retirement account because it's up to the owner whether to "annuitize" or not. So at some point, you may tell them you want to convert your balance to an annuity, but you don't have to...you can just pull out money as needed.

Obviously you'd need to read the fine-print for yourself before investing, and as is often said about variable annuities, if it's not crystal clear how the product works, you need to walk (run?) away.
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Old 03-23-2020, 09:36 AM   #10
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Originally Posted by Bikechuck View Post
TIAA annuities are variable and I have only heard positive comments from retirees that hold them.
This NY Times article casts some doubts on the value of TIAA variable annuities:

If You Bought In to TIAA Based on Reputation, Check Your Accounts

Quote:
“There is really no quantifiable added value in these CREF variable annuities during accumulation stage compared to lower cost mutual funds,” said John Hare, a retirement plan consultant in Brentwood, Tenn., who studied the products. “A retirement plan sponsor needs to question whether paying higher expenses throughout a person’s entire working career for the ‘opportunity’ to purchase a single premium annuity justifies this additional overall cost.”
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Old 03-23-2020, 09:47 AM   #11
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Fidelity, Vanguard and others sell variable annuities that are not the high-commission, high-fee, high-complexity products that give variable annuities the bad name. ...
You have personal knowledge that this is a true statement? You have researched the products?

I just looked at the Schwab page; they are reselling two variable annuities from two insurance companies. It is not possible to download the prospectuses for the annuities. In one case you have to have a user ID at the insurance company. For the other one the company appears to have sold its annuity business to someone else, so no prospectus there either.

Interesting that Schwab appears to feel a need to tell customers this in bold print: Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.
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Old 03-23-2020, 09:52 AM   #12
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You have personal knowledge that this is a true statement? You have researched the products?
Yes. It was years ago, but I read every word of fine-print and pretty sure I understood the products. I recall calling and asking for clarification on some points too.

I agree with a post above that there are not many cases where it would make sense to buy a variable annuity like this, but that doesn't mean there are zero cases where it would make sense.
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Old 03-23-2020, 10:00 AM   #13
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Almost for sure these are people who don't understand what they have bought and don't understand that there are better alternatives.

I downloaded the prospectus for a variable annuity one time. 214 pages of fine print! You can be sure that neither the salesperson nor the customer understood all of it. It was quite amusing to do a text search for the word "fee."
Perhaps, but I have two of these TIAA variable annuities, an RA and an SRA, neither of which I have annuitized that are paying a blended average 4.0%. They are a nice bond substitute because the yield is high by today's standards and the principal does not fluctuate with changes in interest rates.

The SRA is fully liquid meaning that I can sell all of it or part of it at any time. I would need to liquidate the RA over 10 years if I wanted out.

These were obtained through my employer's retirement plan with no sales commissions for me and my 4.0% return is net of any costs.

Please point me to one of the "better alternatives" that you reference in your post above so I can trade up to a better investment. If you can do so I will make a move.
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Old 03-23-2020, 10:26 AM   #14
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TIAA annuities are variable and I have only heard positive comments from retirees that hold them. So it is good to avoid words like "all" and "always" when discussing these matters.
+1 After the dust settles, I expect DW & I will be annuitizing from some, if not all of our TIAA holdings. The monthly payment plus our pensions will cover our expenses plus some. Then we (we, meaning "I"...) can't quit obsessing about SORR.
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Old 03-23-2020, 10:29 AM   #15
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Certainly. If you're selling them.
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Old 03-23-2020, 10:47 AM   #16
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... Please point me to one of the "better alternatives" that you reference in your post above so I can trade up to a better investment. If you can do so I will make a move.
I'm not personally into annuities but I have read here from several more bond-oriented members that one can construct a ladder that is almost certain to last as long as an annuity and, at the end, you are almost certain to have more money remaining than whatever death benefits the annuity might promise. Key phrase, of course, is "almost certain."

From the little I have looked at variable annuities one of the problems is that while the downside is limited, the upside is not calculated on the total return of the index, usually S&P 500. It is calculated on the nominal value of the index, allowing the insurance company to sort of "keep" the dividends. The huge sales commissions and the various fees also detract from the economic value that the customer receives.

@pb4uski used to be in the insurance business. Hopefully he will be along soon with a more detailed comment.
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Old 03-23-2020, 11:45 AM   #17
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I have a Jackson Index annuity funded with IRA money (??) i will sell you. To be honest I have never figured out has it pays. I have been slowly taking out my FREE 10% each year and moving it to my IRA. Couple of years left before No Surrender charges and will move it all.
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Old 03-23-2020, 12:37 PM   #18
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I'm not personally into annuities but I have read here from several more bond-oriented members that one can construct a ladder that is almost certain to last as long as an annuity and, at the end, you are almost certain to have more money remaining than whatever death benefits the annuity might promise. Key phrase, of course, is "almost certain."

From the little I have looked at variable annuities one of the problems is that while the downside is limited, the upside is not calculated on the total return of the index, usually S&P 500. It is calculated on the nominal value of the index, allowing the insurance company to sort of "keep" the dividends. The huge sales commissions and the various fees also detract from the economic value that the customer receives.

@pb4uski used to be in the insurance business. Hopefully he will be along soon with a more detailed comment.
Thank you for your response but I still feel fortunate to have my TIAA Traditional Variable Annuity. Three points in your response that I disagree with

1) I highly doubt that I can invest in a bond ladder with a yield of 4.0% unless they are very risky high yield junk bonds

2) Returns on the S & P 500 are not relevant for me as I am using my TIAA Traditional as a bond substitute

3) Zero does not seem like "A huge sales commission" to me and my blended average return of 4% is after fees so the fees are not high. By the way my RA has a guaranteed return of 3.5% and my SRA a guaranteed return of 3.0%. They have been yielding more than the guaranteed rate for as long as I have held them.

My point is that the words "all" and "always" are best avoided. All variable annuities are not created equal.
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Old 03-23-2020, 03:19 PM   #19
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Back when I worked in the industry in the late 90s TIAA-CREF was a solid player and had a lot of good products and it appears that Bikechuck has a couple of those.... the impression that I get is that TIAA's rep has slipped a bit since way back then.
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Old 03-23-2020, 03:24 PM   #20
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... the impression that I get is that TIAA's rep has slipped a bit since way back then.
+1

That's what the NY Times article I linked above indicates.
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