Extended Guaranty Annuity

[RE2Boys]

I've been searching for places to park cash portion of portfolio and came across an annuity product that appears to act like a CD. For example, pay in $50K with a guarantee rate of return of 5.6% for five years. Years 2-5 you can withdraw up to 10% with no surrender charges.

At the end of 5 years, you can choose various payout options that include a lump sum payment.

Sounds almost like a 5yr CD without the annual 1099s. Though if you chose the lump sum payment, you get 5 year accumulated income on a 1099 that year.

Besides the lump sum income, anyone see any risk or concerns? This is offered by a very solid insurance company - USAA.

Thanks

RE2Boys

 

[brewer12345]

You could do worse than dealing with USAA. Having said that, this type of fixed annuity is a dime a dozen and you have significant liquidity constraints on the money if you need more than 10% in any given year. If liquidity is potentially important to you, I would seriously consider something other than a fixed annuity.

 

[harley]

I was just talking to my Mom earlier today, and found out she has one of these USAA 5 year extended guarantee annuities. Hers is coming due soon and she's planning on rolling it over to a new one. She says the minimum rate she will get is 3%. She doesn't need the money, so liquidity isn't a problem. She never took any of the payouts, so the total amount (probably minus some fees) is still there. She's going to send me the information on it via snail mail (she's not on the internet) so I can read it over for her, but I'm not seeing anything that would make it better to withdraw the money and put it into a regular CD. Anybody know of any gotchas I should be looking for? 3% is better than anything else I'm aware of. TIA.

 

[Gone4Good]

Didn't see the original date of this post was 2006. Thought it sounded too good to be true, and indeed would be. The same product today yields 1.45%. Think I'll stick with higher yielding CDs that don't charge me 8% if I want my money back early.

 

[harley]

Didn't see the original date of this post was 2006. Thought it sounded too good to be true, and indeed would be. The same product today yields 1.45%. Think I'll stick with higher yielding CDs that don't charge me 8% if I want my money back early.

Yeah, sorry about that part. But it was the only thread about these products I found on the site. Still, since my Mom is rolling over an existing annuity she gets the guaranteed 3% minimum, the way she explained it to me. A new account would get the crappy deal you mentioned. I was hoping someone would know more about these devices and point me to any serious negatives, just so I'd know what to be looking for. She lives on her SS and VA, plus any interest on savings and CDs. Since that's so small these days, I think this might actually be a decent investment for her.

I wonder if rolling it over will restart the withdrawal penalties? If so, maybe a 5 year CD for ~1/2% less would be a better deal. That would allow her to pull the money and reinvest with lesser penalties if interest rates go up over the next 5 years.

 

[brewer12345]

harley, look at the contract and perhaps call the insurer if necessary. I think what you really want to know is what the terms of the rollover are. If you have to rollover for 5 years, then it might be worth thinking about alternatives. However, most of these contracts allow you to roll over to a 1 year commitment at no less than the minimum rate (many such contracts default to that option). If she can roll over to just a 1 year stretch, I think it would be extremely attractive vs. the alternatives for 1 year safe money.

 

[TN_INVEST]

Didn't see the original date of this post was 2006. Thought it sounded too good to be true, and indeed would be. The same product today yields 1.45%. Think I'll stick with higher yielding CDs that don't charge me 8% if I want my money back early.

HuH?

Why not leave the money at 3% AND trickle out the 10% each year? Just a hunch, but I suspect that will be enough liquidity. As brewer12345 stated, the contract might even allow for 1 year commitments.

 

[ziggy29]

Yeah, sorry about that part. But it was the only thread about these products I found on the site. Still, since my Mom is rolling over an existing annuity she gets the guaranteed 3% minimum, the way she explained it to me. A new account would get the crappy deal you mentioned. I was hoping someone would know more about these devices and point me to any serious negatives, just so I'd know what to be looking for. She lives on her SS and VA, plus any interest on savings and CDs. Since that's so small these days, I think this might actually be a decent investment for her.

I wonder if rolling it over will restart the withdrawal penalties? If so, maybe a 5 year CD for ~1/2% less would be a better deal. That would allow her to pull the money and reinvest with lesser penalties if interest rates go up over the next 5 years.

I suspect it would trigger the surrender penalties, but if liquidity isn't a major issue and you can confirm the rate would be 3% (I doubt this part, frankly), it might be worth looking at, especially if the ability to take out 10% a year is there.

 

[brewer12345]

I suspect it would trigger the surrender penalties, but if liquidity isn't a major issue and you can confirm the rate would be 3% (I doubt this part, frankly), it might be worth looking at, especially if the ability to take out 10% a year is there.

Lots of outstanding contracts have a 3 percent minimum rate and the insurers cannot change it unless you surrender.

 

[ziggy29]

Lots of outstanding contracts have a 3 percent minimum rate and the insurers cannot change it unless you surrender.

Agreed - but I think part of the deal here is to make sure the existing contract isn't "surrendered" and replaced by one with less favorable terms.

 

[harley]

Lots of outstanding contracts have a 3 percent minimum rate and the insurers cannot change it unless you surrender.

Agreed - but I think part of the deal here is to make sure the existing contract isn't "surrendered" and replaced by one with less favorable terms.

She's got the contract with the 3% in writing, so any attempt to weasel out would be met with loud disagreement. And since she's not on the internet, someone would have to be listening to her. Since she's not in need of the money any time soon, I think she'll go with the rollover at 3%. We'll check and see if it needs to be done for 5 years or 1 at a time. Also, if allowed, will the one year rollover effect the guranteed rate for the next rollover? We'll check. Thanks for all your information and recommendations.