Variable Annuity, Has anyone purchased and why?

[brewer12345]

Thank you John schanzer for your response, you are a risk taker admitting on this board that you purchased an annunity. I asked a question, of annuity buyers and for some reason I am attacked by a moderator who says that I have already made a decision? Moderator rewahoo please delete this thread since it offends you so, and bless your heart.

GM, if you do a search of past threads you will see that this questions has been asked dozens of times in the past and what the answers are. I think you are in some respects the victim of forum fatigue with the same question, often posed by people who seem only to be looking for validation of a decision they have already made (not all of them turned out to have made the decision).

I suggest that you get hold of the prospectus and read it. Do you understand what the product is and does (ignoring whateverthe salesman told you)? Have you found all the gotchas in the fine print (and there will be many)? How do the costs of this product compare with reasonable alternatives? What does this product look like on your spreadsheet after 20 years in up, down and flat market scenarios? You would not be ready to make a decision either way without doing all of this, IMO.

 

[brewer12345]

I have checked into different annuities, after 35 years of investing in mutual funds and doing quite well financially. When the market peaked in 2013 I did not want to worry about losing what I have gained. We transferred 80% of or retirement into a fixed index annuity with Allianz with a 360 rider. Yes the fee is high 1.05% but we are guaranteed to have a great income for the rest of our lives with no fear of loss from the market, plus the income can go up but never down. I have 7 years before I retire and still invest 23% of my income in mutual funds that will be a plus if the market continues up but won’t be a burden if the market goes down.

Wow, I hope you got kissed...

 

[Chuckanut]

Personally, I would be interested in what GM finds out about variable annuities.

The quote below is a reason I would be very careful about purchasing one even after doing due diligence.

In a disturbing new trend, though, several annuity companies have begun to make changes to the investment offerings, ostensibly to simply change the lineup of funds being offered, but done in a way that increasingly appears to change the rules of the game for existing annuity holders after the fact. The first shot across the bow came earlier this spring from AXA, who in the process of rotating investment offerings in a 'routine' prospectus change indirectly defaulted a large number of annuity holders into more conservative investments than they may have originally selected (and often into their own affiliate-managed funds to boot). In a more concerning shift, now Hartford has decided to change its investment offerings as well, and actually require policyowners to voluntarily adopt the new investment offerings or lose their annuity guarantees! In other words, a number of contract owners with what were purported to be lifetime guarantees are now renewed to complete a "renewal" process by October 4th or permanently lose their lifetime income protection!

It is from this article: AXA And Hartford Prospectus Changes A Troubling New Trend For Existing Variable Annuities - Kitces | Nerd's Eye View

The ability to change the rules after the contract is made, makes due diligence very difficult, unless one has a very good crystal ball, or a time machine.

 

[Midpack]

Not always by any means, but how many times have had an OP who (we come to find) had one "right" answer in mind before posting? It would be a lot easier if they would pose a question, and then provide the answer with explicit instructions for the rest of us.

Or better yet, a poll with only one choice...

 

[Koolau]

Thank you for all of your responses, it is obvious to me that even if someone purchased a variable annuity, they would not admit on this website. And since my question was for someone who has purchased a variable annuity, i will move on. We are in the research phase, so we will continue researching elsewhere. No worries

Okay, I bought one (1998 as I recall). It had a "guarantee" of 3% per year. "Gains" in the stock market were to be added in (at some %) thus creating a new "floor". Here is what happened. By the time all fees were taken out, I got EXACTLY the 3% guarantee for 8 years. By the way, that was not compounded. So, if one put in 100,000, then in 8 years it was worth 132,000. Not a very good return. So, I too would suggest you look at other options if you wish to participate in the market. If you want a "guarantee", there are much cheaper ones out there (SPDAs for instance - not a recommendation, by the way).

On this forum, it doesn't pay to be sensitive to what you might think is criticism. Some folks are better than others at stating their beliefs in a way that "preserves self respect". Others are more blunt. As mentioned in this thread, this subject has been covered (and covered and covered). Some responders to your question are to the point of "short hand" in their answers. Don't take it personally. My belief is that you have been offered good advice if not always in a way that feels very good to hear. You have to do your own research and you have to be certain you understand any policy before you should feel comfortable tying up a chunk of your retirement stash. Naturally, YMMV.

 

[Grammymissy]

Koolau thank you for your response, we have still not made a decision on our finances. It is a vanguard variable Annuity that we are still considering. We do have other items we are researching. We are trying to research thoroughly all of our options to make the best decision for us. We do understand that the return is less for an Annuity product and are taking that into consideration. I appreciate your thoughts that others on this board mean well. I have found several other forums that have members not quite so opinionated and quick to pass judgement., and have enjoyed asking my questions of them. I do still read this forum since it does cover so many great topics, with helpful information. Again, I do appreciate your response, and understand why you would not promote the product due to your experience, this is the types of responses I was looking for to help with my decisions.

 

[haha]

Opinionated may mean well informed on a topic. I am not well informed about annuities as I never been even slightly tempted to buy one, especially of the variable variety, so I have no advice or opinion, but I respect the very negative opinions of experienced people on this board. I feel this it is highly unlikely that any time I might spend trying to learn about variable annuities would pay off for me; I just accept what experienced people here have said and related. Once one has been purchased, the calculus changes, and I have never and very likely will never investigate this either.

Some things are not good or bad, depending on who uses them. Some things are just bad, period. For example, it would hard to find anyone whose health would be improved by eating more sugar.That doesn't mean these bad things including sugar eating won't have their fans. A friend who lives in my building loves his Ameriprise rep. How likely is that that this rep is helping this guy?

One reason this board is helpful is that few here are interested in popularity; they like to say what they think. And many here tend to think well about many things having to do with retirement and retirement finance.

Ha

 

[ERPRECY]

FWIW.

Hi!

I did buy a Variable Annuity 3 years ago. See thread titled Annuity Advice for my story.

It's a short one I started last night and I have decided to cancel it, even if it means 5.5% surrender charge.

There is a lot of knowledge on this board. Did not discover this very recently.

 

[ERPRECY]

Did not discover this Board till very recently..

 

[Grammymissy]

Erprecy, I did see your posts, and I wish you the best in your decisions, whatever they may be. If following this boards recommendations and canceling your Annunity at a loss to you, is what you think is best, good luck. I noted that you traveled in your early retirement, that is what my husband and I start next month. First 3 months in England and then 3 months in Portugal, hopefully it will be as great as we hope.

 

[ERPRECY]

Good luck to you, as well. We are also travelling to Portugal at the end of this month but only for 2 1/2 weeks.

 

[Ready]

I found this article on variable annuities to sum things up very nicely, and in plain English.

9 Reasons You Need To Avoid Variable Annuities - Forbes

 

[Huston55]

One reason this board is helpful is that few here are interested in popularity; they like to say what they think. And many here tend to think well about many things having to do with retirement and retirement finance.

Ha

Well said HaHa.

My reasons for not purchasing a VA are summed up in an acronym: ICE

I=Inflation: not inflation adjusted so, loses value each year; when compared to real return of a typical equity/bond allocation, VA loses.

C=Control: lose control of principal and lose liquidity, which is a big deal as one ages and encounters circumstances requiring liquidity. Also, even though sone VAs promise "return of principal", it's typically only after several years of paying high fees (in my example, a loss of 17% of initial investment plus whatever inflation was for 5 yrs).

E=Expenses: 2.79% / yr. Would anyone really sign up for this? After fees and inflation, there really is no "up side", no room for gain in VA value or payout. Although, the insurance company is guaranteed a nice return of 2.79% + whatever they get investing my money.

These numbers are based on an actual quote.

 

[shotgunner]

FWIW, I do recall that during the dark days following the crash of '08 the overall sentiment against VA's purchased before the crash on this board was not as harsh. A lot of people were hurting and most everybody was hit hard. The future looked less then bright. Times are good again.

 

[jerome len]

If I were to look for a variable annuity, it would be with Vanguard but I am not.

If your concern is security I'd look at a fixed annuity, deferring it As long as possible since rates will go up and you would have a double win.....older age and higher rates would increase your monthly payout.

The most important thing is that you feel good about your financial future. And, you really listen to various opinions to make your best decision. If you came to this blog to hear you're right, you will be dissapointed. On the other hand, after you consider everyone's opinion, you should do what is right for you.

Me? I'm looking at charitable annuities. I can afford it, would like the security of monthly income and want to feel good since I'll give back some of my good fortune. Many on this blog can and many others can't afford it......everybody has to do their own thing. Keep watching and contributing.......this is one of the two best blogs worth my time.....a lot of very smart people on it.

 

[Z3Dreamer]

A variable annuity is a tool. No intrinsic good or evil. Using a screwdriver as a chisel does not make the screwdriver bad, only the user when they hit it with a hammer.

In the right situation, annuities can be effective. 20 years ago, DW and I had maxed out in all of company sponsored plans and the like. I had 5% of our portfolio that I could invest for the long term. Taxes were a big issue. I considered Index Funds to have a minimal tax burden but decided against them. I can go into the reasons why, if you want. Instead I went with a Fidelity Variable Annuity. Low mortality charges. In retirement I will cash it out in one or two chunks and pay taxes at 15%. Since the original principal is after tax, only a portion of the distribution will count against OMAGI. I will not elect to take it out over the various life options. I believe that in the example I give, annuities were an effective tool.

I believe that the negatives are because annuities are like the screwdriver in that they are over used. Insurance products have high commissions. Most stocks have low commissions, so brokers began selling annuities when they could. Not when they should. So you are seeing a huge push back. I believe that in OP's case, a big issue to her is market risk. This is a strong selling point of annuities. On the other hand, many on this forum are not as concerned with market risk as they have invested for many, many years. They are more concerned with cutting costs and annuities have high costs - mortality charges, commissions, etc.

 

[ERD50]

Opinionated may mean well informed on a topic.

Interesting comment. We occasionally have a new poster come by and accuse us of 'group think'. Well, that may be true, or is it simply the combined experience of a bunch of people who have 'walked the walk'? It's not always easy to tell the difference, I think one needs to carefully study the reasons behind the near-consensus.

I am not well informed about annuities .... so I have no advice or opinion, but I respect the very negative opinions of experienced people on this board. .... I just accept what experienced people here have said and related.

This probably illustrates my point - I suspect that you accept the other views, not just because they are common, but because they appear to be well reasoned. Even when I don't have a good understanding of a subject, I can usually tell if someone's comments are sound, or if they are merely trying to justify a position (or sell me something). There are usually a lot of tell-tale signs if you know how to read them.

-ERD50

 

[haha]

FWIW, I do recall that during the dark days following the crash of '08 the overall sentiment against VA's purchased before the crash on this board was not as harsh. A lot of people were hurting and most everybody was hit hard. The future looked less then bright. Times are good again.

I do not remember, as VAs were not on my radar at all. But you are right that we are more likely to feel cautious or even fearful after a big threat than when things look clear or at least have been clear for a while.

However, I think a sudden reminder that risk is real is an argument for more conservative allocations, not specifically for annuities of any stripe.

Ha

 

[Grammymissy]

Jerome Len thank you for your comments, I would agree there are some knowledgeable people contributing to this board, and I will keep researching here. Also, thank you for the charitable annuities idea, my husband and I were not aware and have now researched several. We too will be adding this to our investment mix, it is a win win for all.
Z3 dreamer I agree that variable annuities are a tool, one of many for investments, and based on each ones personal needs, an option. Thank you for mentioning the withdrawals in chunks, something for us to also consider. And yes market risk is playing into our investment choices, due to retiring in our early 50's, hopefully we have many years ahead, so we want some security with some of our investments, while risk in others is acceptable.

 

[clifp]

Z3 dreamer I agree that variable annuities are a tool, one of many for investments, and based on each ones personal needs, an option. Thank you for mentioning the withdrawals in chunks, something for us to also consider. And yes market risk is playing into our investment choices, due to retiring in our early 50's, hopefully we have many years ahead, so we want some security with some of our investments, while risk in others is acceptable.

I am curious what risk do you think you are reducing by investing in a variable annuity? I can understand a regular annuity can reduce risk, but it seems to me that a variable is just as risky as investing in portfolio of stocks and bonds.

 

[brewer12345]

Jerome Len thank you for your comments, I would agree there are some knowledgeable people contributing to this board, and I will keep researching here. Also, thank you for the charitable annuities idea, my husband and I were not aware and have now researched several. We too will be adding this to our investment mix, it is a win win for all.
Z3 dreamer I agree that variable annuities are a tool, one of many for investments, and based on each ones personal needs, an option. Thank you for mentioning the withdrawals in chunks, something for us to also consider. And yes market risk is playing into our investment choices, due to retiring in our early 50's, hopefully we have many years ahead, so we want some security with some of our investments, while risk in others is acceptable.

I am urious: how do you evaluate whether an insurer will be capable of making good on the guarantees they layer into variable annuities?

 

[FinanceDude]

I am urious: how do you evaluate whether an insurer will be capable of making good on the guarantees they layer into variable annuities?

1)Ratings such as AM Best, etc.

2)Size of the insurer

3)Percentage of annuity business versus core businesses

4)Historical claims paying ability

5)Ratio of expected claims versus dollars set aside to pay

6)As an example, at insurers like Nationwide and MetLife, variable annuities are a much smaller piece of the pie than at insurers like Jackson National.

 

[brewer12345]

1)Ratings such as AM Best, etc.

2)Size of the insurer

3)Percentage of annuity business versus core businesses

4)Historical claims paying ability

5)Ratio of expected claims versus dollars set aside to pay

6)As an example, at insurers like Nationwide and MetLife, variable annuities are a much smaller piece of the pie than at insurers like Jackson National.

I was not asking you. I was asking our true believer.

 

[Grammymissy]

As brewer12345 points out, there are guarantees layered into variable annuities such as income stream for life and a death benefit of original investment, that are appealing.
And yes there is risk that the Annuity provider could fail, but in 2008 we saw several 'solid' companies fail....
As finance dude points out, we need to research and make the best personal choices we can, for our personal financial situations. Thank you finance dude for that list, it gives me a few more points to consider. Much appreciated.

 

[pb4uski]

As brewer12345 points out, there are guarantees layered into variable annuities such as income stream for life and a death benefit of original investment, that are appealing.
And yes there is risk that the Annuity provider could fail, but in 2008 we saw several 'solid' companies fail....
As finance dude points out, we need to research and make the best personal choices we can, for our personal financial situations. Thank you finance dude for that list, it gives me a few more points to consider. Much appreciated.

Which solid insurance companies failed in 2008? None of note that recall. And don't mention AIG
because it is well established that the problem there was not the regulated insurance companies.