Looking for article on annuity

[Texas Proud]

OK, was with a sister and her husband... he announced proudly that he bought an annuity that paid 6% 'guaranteed'... he could not tell me much more about the annuity but said it was 5 years...


I asked some questions and found out that his financial advisor 'recommended' this to him... I said annuities are not good and he should ask about it... I then found out that it was bought INSIDE an IRA ... I said that you should fire any FA that has you buy an annuity inside an IRA... he got mad...


Now, my sister said that the FA used to be good but moved to Wells Fargo and is now giving bad advice but husband will not listen...


SOOO, I want to send an article or two showing how bad it is to buy an annuity inside an IRA... but my search had not found one that I like... I know many here have this knowledge and might have a link...


PLEASE SEND to help out my sisters husband...

 

[Al18]

Aside from losing the deferred tax status when purchasing an annuity in an IRA, I don't see the problem. This is one method to get around RMD's.


The bigger question is how long the 6% guarantee lasts, if it covers just him or him and his wife and what is the rating of the insurance company that sold the annuity. Is this a fixed or indexed annuity?

 

[mathjak107]

i would have no reason to do it in an ira ,and doing it to delay rmds can be a poor idea


EXECUTIVE SUMMARY

The longevity annuity has become increasingly popular in recent years as a potential new vehicle for retirement income, as its ability to delay payments to an advanced age like 85 allows for a significant accumulation of mortality credits.

And since the introduction of last year’s Treasury Regulations, a so-called “Qualified Longevity Annuity Contract” (QLAC) can even be purchased inside of an IRA or other retirement account, allowing a portion of a retiree’s RMDs to be deferred from 70 ½ to as late as age 85!

However, as it turns out the unique nature of a longevity annuity’s payment structure is not very hospitable as an RMD deferral strategy.

The fact that it can take until a retiree’s late 80s just to break even and recover principal means the retiree risks significant foregone growth by trying to merely defer RMDs through the use of a QLAC.

And of course, the RMDs will still eventually happen anyway, as the QLAC merely defers when payments begin. In fact, ironically, if the retiree does live, the accelerated payments of a QLAC in the later years can actually deplete an IRA even faster than normal IRA RMDs would have anyway!

Ultimately, this doesn’t mean that the longevity annuity (or a QLAC inside an IRA) is a bad deal. The ability to accumulate mortality credits still means it can be very effective as a fixed income alternative for those who fear they may not have enough money to fund a retirement well beyond their life expectancy.

And if retiree intends to spend all of his/her assets anyway, and the only available dollars for retirement are held in an IRA or other retirement account, the QLAC is an effective means to engage in such a strategy.

Nonetheless, the bottom line is that while a QLAC may be a valid way to use a retirement account to hedge against longevity – and defer RMDs along the way – it’s still not very effective as an RMD avoidance or deferral strategy! Just because you can buy a longevity annuity inside a retirement account as a QLAC doesn't mean you should!


https://www.kitces.com/blog/why-a-q...required-minimum-distribution-rmd-obligation/

 

[mathjak107]

it’s 6% but it includes return of principal over the five years .

it’s basically a 5 year cd from an insurance company instead of a bank but it has some different perks

 

[pletal]

it’s 6% but it includes return of principal over the five years .

it’s basically a 5 year cd from an insurance company instead of a bank but it has some different perks

MYGA. . I like them. Helps control my tax burden . When they mature you can roll over to another one if you want

 

[Jerry1]

Not sure I see the problem. I have one in my IRA. It's a 7 year MYGA. The only problem I have with it is that I bought it when interest rates were near zero. At that time, 3.5% interest seemed like a good deal. I took about 20% of my portfolio and put it in the annuity. It's fixed interest, safe money. Seems like a good place for some of my fixed income. I liked it a lot in 2022 when everything else, especially bond funds, took a dive.

As far as getting an article to send him, IMHO, it's time to back away. "he got mad" is your clue to walk away.

 

[TheWizard]

I only like lifetime payout-phase annuities, "immediate" annuities if you will. And pretty much only from TIAA...

 

[pb4uski]

Yeah, you need to find out what type of annuity before immediately concluding that it is bad to buy in an IRA.

MYGAs are just the insurance equivalent of bank CDs but without FDIC coverage (which is why the pay better rates) and surrender charges (which are less of a concern in an IRA where the money is staying put). Same for a period certain annuity that has a competitive IRR.

However there are a whole host of annuity products that are usually bad, whether in an IRA or not.

That said, I generally agree that it is often suboptimal to but tax-free or tax-deferred investments in an IRA, but if I stumbled over an investment grade tax-free municipal bond that paid a good rate compared to a similar garde and maturity CD, I don't see it being a problem.

 

[RetiredHappy]

I don't see an issue at all. I bought 2 fixed deferred income annuities with IRA money, one starting at my age of 60 and the other at 70. You can also buy a QLAC in IRA to start at age 85. If you strip out the principal part of it, mine pay > 5% per year. The deferred payment helps with the accummulation of growth of the principal to allow for higher returns.

 

[mathjak107]

once you get away from simple spias , it can be very difficult to know exactly what your deal is with these more complex life annuity products or deferred annuities.

i have looked at quite a few , and while they don’t lie about the guarantees , they don’t exactly tell the whole story .

if anyone is interested i can show you why . it was a product i saw at a seminar and it sounded so good with it’s guarantees . until you looked under the hood

 

[ShokWaveRider]

We have 2 MYGAs (5y@4.7% & 7y@5.5%) each with A++ companies at the State's Guarantee fund Maximum. Both have a 10% annual withdrawal allowances that can be set up to pay monthly if desired. Non-qualified in our case but both seem like a good deal. No regrets so far.

 

[jazz4cash]

I have no problem buying an annuity inside an IRA, especially if it’s a MYGA. I have 3 of them from an A rated insurer. That’s a good rate for a MYGA these days but need to stay below State Guaranty Assoc limits.

This sounds like a MYGA but who knows. Using the word ‘annuity’ without specifying the type of annuity is a pet peeve for me.

 

[Texas Proud]

Not sure I see the problem. I have one in my IRA. It's a 7 year MYGA. The only problem I have with it is that I bought it when interest rates were near zero. At that time, 3.5% interest seemed like a good deal. I took about 20% of my portfolio and put it in the annuity. It's fixed interest, safe money. Seems like a good place for some of my fixed income. I liked it a lot in 2022 when everything else, especially bond funds, took a dive.

As far as getting an article to send him, IMHO, it's time to back away. "he got mad" is your clue to walk away.

I am not sure IF it is really 6% as he also mentioned 5% if something happens...


I did back away when he was mad... but sister wants something for him to read and when he was leaving he said 'maybe we can talk about finances some more', so I think he cooled off and thought about what I said...

 

[Texas Proud]

It is a fee generating investment.... I really do not know what he bought as HE does not know what he bought...


I think you can buy similar to better investments without the big fee going to the FA....


From https://www.immediateannuities.com/annuity-commissions/


As an example, if you purchased a short term (3-4 years) MYGA through our service we would earn a 1% to 2% commission. If your MYGA was for a longer duration (5-10 years) our commission might be 3%. Generally, there are no annual fees with a multi-year guarantee annuity

 

[ShokWaveRider]

I have been laddering MYGAs over the last couple of years. I prefer them to CDs in a lot of cases as you can get 10% a year with no penalty if you choose the correct one.

 

[jazz4cash]

It’s all noise since no one seems to know what the product is. I’m sure there’s an illustration available. Start there.

 

[ShokWaveRider]

It’s all noise since no one seems to know what the product is. I’m sure there’s an illustration available. Start there.

From the description in the OP, it can only be one of 2 things:

1) a 6% 5 year MYGA

2) a SPIA with 5 years Period Certain Paying 6% of the principle back annually that include interest and principal.

 

[Texas Proud]

From the description in the OP, it can only be one of 2 things:

1) a 6% 5 year MYGA

2) a SPIA with 5 years Period Certain Paying 6% of the principle back annually that include interest and principal.

Knowing my BIL it could be something to do with a stock index with a 'minimum' which I am not sure what that is...


I will wait to see if he wants to talk... not willing to give any more unsolicited advice... well, except for an article if one is presented...

 

[jazz4cash]

The sites I use are Blueprint Income, Stan Annuity Man, and immediateamnuities.com. They all have lots of educational info. You could skim those sites or call them up and chat. In any event you could spend time on details that do not apply unless you get the name or type of product BIL bought. I think all annuities have a free cancellation period so I would not procrastinate.

 

[Texas Proud]

The sites I use are Blueprint Income, Stan Annuity Man, and immediateamnuities.com. They all have lots of educational info. You could skim those sites or call them up and chat. In any event you could spend time on details that do not apply unless you get the name or type of product BIL bought. I think all annuities have a free cancellation period so I would not procrastinate.

I think it is 2 years old already... but again not sure as BIL is not financial literate and hems and haws....


We are going to have a family get together next week and if he brings it up I will ask... if he does not I am OK with that...

 

[Sunset]

I have been laddering MYGAs over the last couple of years. I prefer them to CDs in a lot of cases as you can get 10% a year with no penalty if you choose the correct one.

10% would entice me.

Can you explain how to find these or where to look ?

 

[pb4uski]

10% would entice me.

Can you explain how to find these or where to look ?

10% isn't the rate of return. 10% is an annual free withdrawal allowance.

IME the way it usually works is that there is a 30-60 day window of time around the policy anniversary that you can withdraw up to 10% of you balance without any surrender charges.

The yields of MYGAs are typically competitive with similar term bank or brokered CDs and sometimes a little better.

 

[jazz4cash]

The MYGAs I bought permit upto 10% free withdrawal anytime during the year. I even took a free withdrawal within the 1st 12 months. They lowered the withdrawal limit to 5% on current offers. Some providers allow withdrawal of interest monthly, I think. The withdrawal policy details tend to be obscure. Blueprint Income has the best descriptions IMO.

 

[ShokWaveRider]

10% would entice me.

Can you explain how to find these or where to look ?

The 10% is an annual withdrawal amount allowed without a penalty. NOT interest rate. That is what makes some MYGAs more attractive than CDs for some Seniors. I think you may be confused about that.

As folks here have said many times for more details see:

Stan the Annuity Man
BluePrintIncome
ImediateAnnuities

See a previous post that also states this.

 

[Jerry1]

The 10% is an annual withdrawal amount allowed without a penalty.

And not all MYGA have this provision. The one I have only lets me take out the income penalty free. Didn’t matter to me since I don’t want to draw from it but it was a mistake on my part not to understand that provision when I purchased the annuity.

Even more restrictive is that I can only take out the current year income and it has to be done on the anniversary date (30 day window IIRC). And, unlike CD’s, the early withdrawal/cancelation penalties are brutal. Three years in (out of 7) and if I cancel it now, I’d just barely get my principal back. Again, not a problem, as I wanted that money in a guaranteed product. But, if you don’t understand those types of conditions going in, one could get burned pretty bad.