Are you happy with your annuity?

[LXEX55]

When I retire next year I was thinking of purchasing a fixed immediate annuity from Vanguard. I know all the drawbacks. I like the idea of not having to worry about the stock market and having a fixed amount for life. If you purchased an annuity are you happy with it or do you regret the purchase? Any thoughts? Thanks for your time.

 

[MarieIG]

The jury is still out.

I am not retired yet, and have not yet annuitized. I purchased a Vanguard, variable annuity. The prices are low for a variable annuity and it has made money. I am considering rolling it over to a Vanguard fixed annuity in the future, however the interest rates are low.

I like the idea of a fixed sum coming in every month, but the amount seems low for the value of the account. So, I'm going to sit tight for a while and see what happens with interest rates.

 

[rodi]

I understand wanting to annuitize some of your nest egg. Especially if you don't have any pension (outside of SS.) But the current interest rates make me less than excited about purchasing a fixed single premium annuity. If interest rates go up - I'll be looking at it closely.

 

[MRG]

Timely topic.

I don't have an annuity my new Fidelity rep has been pushing me to look at adding one for guaranteed income. I should add my DF sold the things for Met and told me never to buy one.

I'm not sure of this rep, he's pushing a little too much for me. He explains well, if I question. Last week I pushed back very hard about tying up that much money(400-700k) and suddenly we're talking about a bond ladder and fidelity's managing it!

I understand why you would want to add some fixed income if you only have SS. The mostly permanent nature of the things makes me leary. My DFs comments were mainly about fees and complexity. He also felt your money could do better. Of course his pension was secure too!

Does anyone have a feel for what a 1% increase in the Fed rate would do to new or existing fixed annuities payout?

 

[Souschef]

In DW's case, her husband died, and his business went under. She put the life insurance proceeds in an annuity to protect her against creditor claims.
At the time it was probably the right thing to do.

 

[travelover]

I guess I have an annuity. I get a monthly pension check from Mega and a few years ago they offered me a lump sum, which I refused. I'm happy with it, but it is not COLA-ed, so I am starting to feel my buying power slip away after a decade. Fortunately, I also have a 60/40 portfolio to compensate for inflation when I reach the point where the pension does not cover my expenses.

 

[street]

I had a thread on annuity a few days ago. I learned a lot about the one I had and some great advise from people here. At this point I'm happy with the returns I have had from mine variable annuity. I have averaged just over 7% a year and I had in for 15 years. It comes with draw backs with some costs but I'm paying for some guaranties and perks the annuity has. It is better then money in the back and no surrender charge and can get to it anytime any amount. Of course I will have to pay taxes on gains but have had tax deferred money for now.

 

[LauAnn]

Yes, I'm happy. I was required to annuitize a portion of my retirement funds due to the type of plan we had at work. No qualms about that. I plan to spend less on discretionary items as I age so that will offset the impact inflation and spending power of the annuity. I love not having to worry about the impact of the market on this particular portion of my retirement funds.

 

[Red Badger]

Timely topic.

I don't have an annuity my new Fidelity rep has been pushing me to look at adding one for guaranteed income. I should add my DF sold the things for Met and told me never to buy one.

I'm not sure of this rep, he's pushing a little too much for me. He explains well, if I question. Last week I pushed back very hard about tying up that much money(400-700k) and suddenly we're talking about a bond ladder and fidelity's managing it!

I understand why you would want to add some fixed income if you only have SS. The mostly permanent nature of the things makes me leary. My DFs comments were mainly about fees and complexity. He also felt your money could do better. Of course his pension was secure too!

Does anyone have a feel for what a 1% increase in the Fed rate would do to new or existing fixed annuities payout?

+1.
Met with my FIDO guy a few weeks ago and he was leaning on me to annuitize a portion of our stash. I told him that annuities were a non-starter at current interest rates. Agreed to revisit the topic annually, but for now, nope.

 

[Ronstar]

I bought an annuity 20-25 years ago. It had a guarantee such that the account balance could not go lower than it was at any time in the previous year. So it performed well during the 2008 recession. Other than that, it didn't perform very well. I explored options to sell - (too much of a tax bite) and explored a 1035 exchange (had to go to a different annuity). I ended up annualizing it for monthly payments for ten years.

I could have done a lot better years ago by investing the cash in an index fund, but the annuity did provide a little bit of shelter from a market disaster if one were to happen.

 

[athena53]

I never bought one but my brother the hotshot tax accountant did. He had tunnel vision at the time- lured by the prospect of the funds accumulating tax-free till withdrawal. He later regretted it when he realized the expense loads made it a bad deal, but getting out was prohibitively expensive.

I don't weep for him too much. He's a partner in a large (but not Big 6) firm and Dad said he figures he's making $1 million/year.

 

[OHjosh]

I understand wanting to annuitize some of your nest egg. Especially if you don't have any pension (outside of SS.) But the current interest rates make me less than excited about purchasing a fixed single premium annuity. If interest rates go up - I'll be looking at it closely.

I don't understand what changes in interest rates have to do with making this decision.

I am exactly in the position you described; no pension, just IRAs and eventually SS. About 40% of my money is in annuity plans. This money is invested in stocks and bonds and has performed quite nicely. I did lose some of its value to pay for "insurance", to ensure they kept 80% of their maximum value at any given quarter.

My annuities will mature in the next two years and then I was going to move them into a guaranteed 6% fixed. With that spinoff and SS, I would then need maybe an additional $10K to meet my annual financial need. The rest of my nest egg will keep growing. In fact, I wonder what happens once I must take the minimum distribution from my IRAs... I won't spend that much money!

 

[REWahoo]

I don't understand what changes in interest rates have to do with making this decision.

I'm a little surprised that someone who buys/owns annuities doesn't understand the relationship between interest rates and annuity payouts:

If interest rates are high when you buy your annuity, your annuity payments will be higher than if interest rates were low. That’s because the financial institution predicts it can earn more by investing your money.

https://www.getsmarteraboutmoney.ca...nnuities/6-things-that-affect-annuity-income/

 

[Danmar]

I have a fairly large pension which by definition is an annuity. I am very “happy”with it. How could you not be happy with an annuity? Maybe you could go back and calculate what the purchase price would be worth now if invested in the markets instead? On this basis nobody would be happy with their annuity? Hind sight? I wish I had bought Amazon 10 years ago. I’m not “happy” about it.

 

[harley]

I've got a couple of variable annuities from back in the days when I had an FA "looking out for my interests". One had a 12 year surrender charge, the other was 15 years. Like Ronstar's situation, the tax hit is too big to sell them. I transferred the first one to VG when the surrender charge lockout expired. I'll do the same next year for the other one. I don't want to take any payouts yet, as I am trying to keep us in the 15% bracket for Roth conversions.


I'm not happy with them and wish I hadn't done it. But I was ignorant and trusting back in those days. And now, they're there and not hurting me, so I pretty much ignore them. I'll figure out what to do with them someday.

 

[CaptTom]

Met with my FIDO guy a few weeks ago and he was leaning on me to annuitize a portion of our stash.

I don't have an annuity my new Fidelity rep has been pushing me to look at adding one for guaranteed income.

Remember that the salesmen (who sometimes call themselves retirement planners) make a large commission on these instruments.

I'm not saying there's no place for annuities in anyone's plan. I could see it as a hedge in a larger strategy for a high-net-worth individual. I understand it as a tool to turn a lump-sum pension into a more traditional one.

Otherwise, I'd be very skeptical of anyone trying to push them.

 

[Cobra9777]

DW and I both have pensions from our former employers. They're not huge, but they cover 60% of spending. We both had lump sum options, so in effect, we purchased the annuities. In both cases, the payout ratio was larger than an equivalent SPIA that we could have purchased at the time. So we felt OK about the decision, even though one is non-COLA and the other has a partial COLA. At 52, we had a lot of years until SS. This was a way to diversify our pre-SS cashflow and reduce some sequence risk. When I run the numbers through FIRECalc, we would probably be better off with the lump sums. But for a relatively small portion of our NW, annuitization felt like the right decision for a more balanced 3-legged stool.

 

[OHjosh]

ReWahoo: I don't appreciate the editorializing on my question. I didn't undertand the connection; that is why I asked the question in the first place. If unknowlegable people can't ask questions, how can anyone learn?

I still don't necessarily get your answer. If I don't like the fixed rate I won't take the annuity. I still see value for me in having some fixed income.

 

[Onward]

I bought a deferred-income annuity from MetLife. I ended up cashing it out. Many reasons. Among them:

1. MetLife customer support was basically non-existent. I'm still in disbelief as to how inaccessible they were.

2. The further I dug into the contract, the worse the terms turned out to be (for me).

3. In the end, the voluminous annuity contract was absolutely impossible to understand fully. And I'm not a dumb guy. I am not saying it was difficult to understand. I'm saying it was impossible.

 

[Amethyst]

I'm of 2 minds about annuities. While working, we put a lot of money in a tax-deferred, fixed-income retirement account because interest rates were high at that time. It's still growing, very slowly but at slightly higher rates than CD's. (Its fees are about the same as the equivalent Vanguard investment, so there would be no merit in transferring it to VG). Unlike Onward's Metlife account, ours is with a small company that has pretty good customer support. I *think* Metlife may underwrite it though.

While it definitely looked like a good investment at the time (1990's, mostly), it's frustrating to have so much money tied up in it now. We could cash it in and reinvest the proceeds, but that would mean a huge tax bill on the considerable gains. It was really meant for annuitizing. But as this thread stresses, annuity rates are terrible, and look to remain terrible for a long time to come.

So you pays your money and you takes your choice, as one of my late Dad's 19th-century sayings goes. (He had a stock of them from his father, and some are hilarious).

 

[REWahoo]

ReWahoo: I don't appreciate the editorializing on my question. I didn't undertand the connection; that is why I asked the question in the first place. If unknowlegable people can't ask questions, how can anyone learn?

Sorry if you were offended, wasn't my intent. I was only expressing my surprise as I stated.

Of course unknowlegable people can ask questions - I do it all the time.

I still don't necessarily get your answer. If I don't like the fixed rate I won't take the annuity.

I think you and rodi are in agreement. I interpreted her post as "when interest rates (and payouts) go up, I'll reconsider."

 

[easysurfer]

Am I happy with my annuity as an investment? no

Am I happy with my annuity as a constant income stream rest of my life? yes

Happy with annuity overall? Yes. I kinda like the idea of getting paid to be alive.

 

[haha]

I don't understand what changes in interest rates have to do with making this decision.

 

[PatrickA5]

We'll probably consider a SPIA when we start taking SS in 5 - 10 years. I like the idea of having a steady stream of income that would cover most of our expenses when combined with SS. I wouldn't probably spend more than 20-30% of our retirement money, though. And, the payouts would have to be higher than today.

 

[Z3Dreamer]

Here is how interest rates effect pricing. The insurance company takes your money and lets say they invest at 50/50 AA. Long term on market is 11% and 30 year Treasury notes are paying 3%. That is a long term return of (11%/2 + 3%/2) 7%. Therefore they price your annuity at 5%. They have a long term margin of 2%.

When 30 year Treasury notes are paying 6% their return is 8.5%. If their margin is always 2%, then they price your annuity at 6.5%

In the first example, on $100,000 this means that you would get a 5% payout or $5,000 a year. Second example would be $6,500.

I have oversimplified and used the wrong benchmarks but the theory is still sound.