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Fixed Annuities
Old 07-21-2009, 06:10 PM   #1
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Fixed Annuities

I have been a lurker on this board for a while, and would appreciate some advice on a situation that is unfamiliar to me. I find myself with the responsibility of looking after the assets of a 90-year old relative with dementia. This person has always been a very conservative saver, who uses mainly CDs and money market funds as his savings vehicles. No problem. So I was recently in a bank discussing CDs, and the bank person advised me to put some of my relative's funds in an annuity. Now, I've always considered annuities as unsuitable for many, due to their high fees and low returns (not like CDs!!). In addition, a 90 year old may be too old for an asset which disappears when he dies. I expressed my concerns to the bank person, who stated that this particular product has no fees, and can be passed on in its entirety to a beneficiary. The return is currently something like 4%; and I believe the product is sold by a company called Western National.

Does this sound credible? I would appreciate any comments.
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Old 07-21-2009, 06:33 PM   #2
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Seriously?

a. Do a search on this forum for "elderly and annuity" to see what some folks say (or just for "annuity").

b. Look at what is apparently the annuity provider's website, which outlines the many fees your elderly relative will be paying constantly to get his own money back: Annuity Buying Guide

c. If your relative has been surviving on his CDs and MMs through age 90, why change that strategy now? The person who will really benefit from that change is the bank salesperson imho.

I would do my homework before making any investment decision.
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Old 07-21-2009, 06:43 PM   #3
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What you are likely being pitched is a fixed deferred annuity, which is basically a CD dressed up as an annuity. They do not have FDIC insurance and sometimes they have significant early withdrawal penalties, although they do offer above market interest rates.

If I were you, I would stick with cash and short term CDs.
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Old 07-21-2009, 10:13 PM   #4
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Welcome to the board, 2005NW.
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Originally Posted by 2005NWretiree View Post
... and the bank person advised me to put some of my relative's funds in an annuity.
If I was a bank person I'd advise you to boost my commissions and my performance evaluation do that too.

Here's an article that John Greaney posted on his RetireEarlyHomePage about the high cost of annuities. The markups are impressive, and I can't believe that this annuity product is delivering extra yield at no cost:
The high cost of a no-fee, no-commission Single Premium Immediate Annuity (SPIA).

Essentially what you're doing is chasing yield while guaranteeing income (as much as the insurance company can guarantee it, anyway) for someone who probably already has more than enough income for the rest of their life.

I don't know how the heirs would feel when they learn how you've discharged your fiduciary stewardship of an elder's assets by spending them on an annuity. I guess you have to decide how you would feel if you were subpoena'd to give a deposition to a lawyer explaining why you felt the annuity was in the best interests of the person whose assets you're guarding. Or how a newpaper reporter would make you look in their financial exposé article.

If you want to chase yield you could sign them up for a Pentagon Federal Credit Union membership (everyone is eligible) and buy an FDIC-insured 7-year CD at 4%. You could have the dividends either compounded to their account or distributed to their checking account:
https://www.penfed.org/productsAndRa...rtificates.asp

You could also take that link to the bank and ask them to match PenFed's offer...
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Old 07-21-2009, 10:34 PM   #5
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Hello and welcome to the forum, 2005NW Retiree, your user name almost sounds like a complete introduction but when you get a chance, go over the the "Hi, I Am" section and introduce yourself. Let us know how your retirement has been going. Four years out, I'd be interested in your perspective.
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Index Annuities?
Old 07-22-2009, 07:01 AM   #6
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Index Annuities?

Has anyone bought Index Annuity? If yes, then how does work? Are they worth trusting?
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Old 07-22-2009, 07:30 AM   #7
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Has anyone bought Index Annuity? If yes, then how does work? Are they worth trusting?
This? Investor Alert: Affinity Fraud

I think a "few" people here will tell you a lot more.
http://www.bogleheads.org/forum/view...=37782&start=0
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Old 07-22-2009, 08:57 AM   #8
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Has anyone bought Index Annuity? If yes, then how does work? Are they worth trusting?
Absolutely not.........
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Old 07-22-2009, 09:00 AM   #9
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Quote:
Originally Posted by 2005NWretiree View Post
I have been a lurker on this board for a while, and would appreciate some advice on a situation that is unfamiliar to me. I find myself with the responsibility of looking after the assets of a 90-year old relative with dementia. This person has always been a very conservative saver, who uses mainly CDs and money market funds as his savings vehicles. No problem. So I was recently in a bank discussing CDs, and the bank person advised me to put some of my relative's funds in an annuity. Now, I've always considered annuities as unsuitable for many, due to their high fees and low returns (not like CDs!!). In addition, a 90 year old may be too old for an asset which disappears when he dies. I expressed my concerns to the bank person, who stated that this particular product has no fees, and can be passed on in its entirety to a beneficiary. The return is currently something like 4%; and I believe the product is sold by a company called Western National.

Does this sound credible? I would appreciate any comments.
The asset does NOT disappear when the person dies. Most banks will not allow the selling of any kind of annuity to a person over 85 years of age.

Western National has an "ok" rating of BB.........not the rock solid rating of A- or better, I wouls stay away.

Sounds like a fixed annuity with high surrenders if you take out more than the interest. However, a fixed annuity should NOT be confused with a SPIA........
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Old 07-22-2009, 09:03 AM   #10
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Quote:
Originally Posted by rsingh6675 View Post
Has anyone bought Index Annuity? If yes, then how does work? Are they worth trusting?
Danger, Will Robinson. Run!

Annuities are mostly a four-letter word. Having said that, an SPIA *can* be a reasonable vehicle depending on circumstances and the vendor of the annuity. Even there, the problems are (a) many of them are high-fee crap, (b) right now payouts are low because they are tied to long-term Treasury yields and (c) they are too often sold to people for whom an annuity is not appropriate.

But these EIAs are fairly toxic and expensive in my experience looking at them. For practical purposes most people could replicate an EIA by holding a stock index and buying put options to protect against market downturns. They'd likely do better and pay far less in fees.
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