Who purchased an annuity and is glad they did?

[Sunset]

One negative thing I learned about annuities upon the death of a relative, is that the cash payout of the annuity is taxable to the heirs based on the increase over the purchase price.
There is no step up in basis like with a stock or property.

I have read somewhere , a person can buy a delayed annuity within their IRA (thereby reducing the RMDs), but I haven't looked into it.

 

[Souschef]

One negative thing I learned about annuities upon the death of a relative, is that the cash payout of the annuity is taxable to the heirs based on the increase over the purchase price.
There is no step up in basis like with a stock or property.
I have read somewhere , a person can buy a delayed annuity within their IRA (thereby reducing the RMDs), but I haven't looked into it.

It is called a QLAC, and I was offered one. After researching it, it meant if you were lucky, you get your original investment back at 85.

 

[RetiredHappy]

I have read somewhere , a person can buy a delayed annuity within their IRA (thereby reducing the RMDs), but I haven't looked into it.

You can always buy a deferred income annuity with IRA. See my post #6. There is a special category called QLAC where you must start annuity payment no later than 85 yo.

 

[MikeTN]

I, like some others above, worked at a not-for-profit with a TIAA retirement program. I annualized about 30% of my accumulated funds and am glad I did. It is largely a bond substitute.
My purchase of an annuity requires fewer funds to be removed from the mostly equity portfolio in order to cover basic needs. Result: If I had died early my heirs would have received less (but still a lot) and if I live a long time my heirs will receive more than if I had not annualized. meanwhile I get to watch a larger mostly stock portfolio grow. Annuities have lower payouts today than 10 years ago, but bond are likely to have negative or very low returns. So I think a SPIA or a TIAA annuity still makes sense if you are conservative enough to want more than your SS check to come from "safe" sources.

 

[Ready-4-ER-at-14]

The original question was are you happy with the purchase which also implies the question as to why are we happy.

I had a life experience with a very nice older lady from a church group who supported missionaries in her church in China. They always sent her made in China folding scissors which she dispensed to friends. I was older 20's and her maybe 70's. Anyhow in my mind she was as old as dirt.

Anyhow her husband had died, and her money was drying up and she had relied from rentals from her three flat for income but she was too caring about tenants to raise rents reasonably. We helped her with property tax one year just before she lost the building making her promise to raise rents, By her raising rents immediately this was not taking over her problem long term. Amazingly we got repaid although I lent not expecting it.

Fast forward some years later and she was in some sort of assisted living and stressing out about the lone bulb at the top of the stairs that was on her meter.. as it was 40 watt and not 25watt. Later I saw her and she was happy... turns out her deceased husband had purchased an annuity for her and it had either turned on or had been found. She spoke of that income as her salvation.

I'd like to think my mind will run like a finely tuned racecar till my 100's. But people actually forget about resources at banks and stuff so set it and spend it appealed. I can decline some and still spend auto payments. I have seen two relatives and several acquaintances decline and many patients decline with age.

Most of our annuities were purchased when interest rates were much higher, We delayed the turn on for significant periods of time. Per my notes at least one changes yield from 4% to 5% after in force after retirement age. In three of the cases, we had quite significant capital gains in paid off longer term RE that even after taxes left chunks of cash. We are talking four- and five-digit amounts.

I liked the idea of returns that were for life for either of us that at least initially (until all of cash spent on product returned) were about 33% taxable.

I don't like to mix goals in investments. IE like a growth and income fund.. seems like a multipurpose red cross knife with a spoon, fork, fishhook remover, and car battery jumper all in a handy carrying case. Meaning if i want growth and income, I buy some growth and I buy some income.

Even re SS we did one early and doing one later.

I know that all stock has traditionally been the best way to go but analysis says we will have enough, and we have been helping relatives. Per what i see we can make the same accumulations of new holding that we did while working, not working and the snowball gets bigger every year as does the only stock related stuff.

Not sure it matters however I stress out if holdings drop 35% as I am not currently beating the game. Also if stock is only 1/3 and it drops 35% the net decline was 12% and passive income was not affected.

I guess investing this way fills irrational needs. My compromise has been to move more and more to index, but frankly when QQQ started dropping about a week ago I cashed out and took my capital gains on about 10% of stock holdings. I still have the heart of a stock trader and feign being a long-term stock index holder. I never get completely out but i reduce the pain and up the passive income.

Some of the best investors have gone essentially bankrupt by having too much invested when they were feeling too unbeatable. I get nervous if i have more than 5% in anything. I have one investment up better than 110% in a year and it is like 13% now but still going up crazily.

Feel like I am in confessional. forgive me I have sinned. : ) I have broken the Ferengi rules of acquisition. : ) Especially about maximizing gains. But I do feel sad if I underperform.

 

[retired1]

I have bought few MYGAs from Blueprint and I'm happy with it so far. These are saving funds to keep up with Inflation in a safe (CD like) instrument. I do plan to have Immediate Annuity to start in mid-sixties since I won't have any pension. But that's about 10 yrs. away for me.

 

[sengsational]

The rules for annuities are all over the place, but in the simple case, where the money stops when you die, you can't take the average of the responses in a thread like this, and make any conclusions. Why? Because the people who died before getting their original money back aren't posting here! You've got to figure those people who bought one and had to live 20 years just to break even weren't happy with their decision when they got the news they'd be pushing up daisies in 2 years, right?

 

[skyking1]

$1950 x 6 x 12 = $140,400 total payout.
During the six years you are getting $23,400 each year.
If you just kept the $100,000 as cash you could pull $16,666 per year. You got an extra $6,733 per year over that with the annuity.
My calculations show you earned just under 6% per year.

I don't think it is a bad trade for piece of mind, with not knowing what the market is going to do and when it's going to do it.

I just got the paperwork from the new annuity, and have more precise numbers. It will put a $2005 deposit in our account.
YMMV, but I have heard that women and men picture retirement spending in different ways.
My wife greatly appreciates the security of knowing that there is a flow of money coming in from that annuity and my pension, greater than the monthly spend.
The ups and downs in the market do scare her more than I.

 

[TheWizard]

The rules for annuities are all over the place, but in the simple case, where the money stops when you die, you can't take the average of the responses in a thread like this, and make any conclusions. Why? Because the people who died before getting their original money back aren't posting here! You've got to figure those people who bought one and had to live 20 years just to break even weren't happy with their decision when they got the news they'd be pushing up daisies in 2 years, right?

Lots of folks die before getting all their money back from Social Security, too. Some even pass before age 62 and get ZERO back.

But SS is not optional so it's wasted breath to complain about that.

The purchase of an immediate annuity IS optional, so it's wise to consider your health and longevity prospects before pulling the trigger on one of those.
I annuitized a chunk of $$$ at age 63 with a 10-year guarantee; I get to nine complete years next May.

In my case, it takes about 15 years to "get all my money back", for what it's worth. I suspect I'll make it. Stick around...

 

[OldShooter]

The rules for annuities are all over the place, but in the simple case, where the money stops when you die, you can't take the average of the responses in a thread like this, and make any conclusions. Why? Because the people who died before getting their original money back aren't posting here! You've got to figure those people who bought one and had to live 20 years just to break even weren't happy with their decision when they got the news they'd be pushing up daisies in 2 years, right?

Excellent point. Nassim Taleb calls this "silent evidence."

I'm glad the OP started this thread and have enjoyed reading it, but the responses really cannot be construed to be representative of anything. He has precluded most of the silent evidence by restricting the thread to people who are "glad" they purchased, and in general the FIRE crowd that he's polling is far more sophisticated than the run-of-the-mill victim of Fast Eddie et al. Still, the answers make interesting reading.

One gripe: IMO an MYGA is an annuity in name only. It is really just a form of corporate debt draped in an annuity veil so that insurance-licensed salespeople can sell it. So, again IMO, happiness with MYGAs is really not very relevant to happiness with real annuities.

 

[Bryan Barnfellow]

The rules for annuities are all over the place, but in the simple case, where the money stops when you die, you can't take the average of the responses in a thread like this, and make any conclusions. Why? Because the people who died before getting their original money back aren't posting here! You've got to figure those people who bought one and had to live 20 years just to break even weren't happy with their decision when they got the news they'd be pushing up daisies in 2 years, right?

You can usually purchase a guaranteed period during which the annuity will continue to payout to your beneficiary. We chose a 10 year certain period for just a few dollars a month smaller payout. It was a trifle. So during those 10 years if we both died our beneficiary still got a sizeable amount of money.

As to the lack of step up that someone else mentioned. I haven't heard of that. In our case, we purchased a two life 100% annuity. So, if I die first, my wife just continues to receive the full annuity stream until she dies. We don't have children. So, we used a small portion of our overall investment assets to purchase a steady stream of income, no matter what. We don't own bonds, so this is a substitute.

-BB

 

[Bryan Barnfellow]

An immediate annuity can be a big benefit to SOME folks. The rest of us...not so much.

Disagree. I see a lot of group think on this forum, or at least a lot of speaking for others who don't themselves post here.

-BB

 

[TheWizard]

...My purchase of an annuity requires fewer funds to be removed from the mostly equity portfolio in order to cover basic needs. Result: If I had died early my heirs would have received less (but still a lot) and if I live a long time my heirs will receive more than if I had not annualized. meanwhile I get to watch a larger mostly stock portfolio grow. Annuities have lower payouts today than 10 years ago, but bond are likely to have negative or very low returns. So I think a SPIA or a TIAA annuity still makes sense if you are conservative enough to want more than your SS check to come from "safe" sources.

You make some good points.
As mentioned above, I also annuitized a decent chunk of $$$ with TIAA at start of retirement, age 63.
I had a seven year span until starting SS at age 70, so I did additional withdrawals from portfolio over those years to cover expenses.

But now, with almost $4k per month from SS coming in and over double that from TIAA lifetime annuities, I generally have excess income to invest most months.

However, the mix of guaranteed vs variable income should be considered. Of my income just mentioned, less than half is guaranteed (SS+ TIAA Traditional).

The majority of my income is variable (TIAA Real Estate Account +CREF Stock) based on a 4% "hurdle". So my monthly income based on those investments changes proportionally to their performance over 1.04.

Since the broad stock market, including dividends, has historically grown at more than double 4% annually, I have reasonable confidence my retirement income will grow and fight inflation to a degree.
It has for 8+ years so far...

 

[TheWizard]

Excellent point.
One gripe: IMO an MYGA is an annuity in name only. It is really just a form of corporate debt draped in an annuity veil so that insurance-licensed salespeople can sell it. So, again IMO, happiness with MYGAs is really not very relevant to happiness with real annuities.

Correct, it is not an Immediate Annuity.
The purchase of a MYGA does not result in the start of a lifetime monthly income stream the following month...

 

[Landolink]

My annuity is EE bonds. $40k a year starting at my age of 65/wife 60.

 

[OldShooter]

... The purchase of a MYGA does not result in the start of a lifetime monthly income stream the following month...

I have read that few are ever annuitized. It's more a strange sort of asset where you are an unsecured creditor but the state insurance guaranty fund is backing up the issuer. Really not a bad deal IMO. But not really a classic annuity.

 

[skyking1]

^In function, just a CD with a different name.
We are annuitizing ours to keep income down, as we will be doing concurrent roth conversions. When the annuity is done so are those, as my SS will push our income up to the next bracket.

 

[ShokWaveRider]

As MYGA's can be annuitized at certain times and that 10% can be withdrawn annually if set up to do so, and most can, they are a lot different from CDs and traditional Corporate Debt.

 

[Trooper]

It's more a strange sort of asset where you are an unsecured creditor but the state insurance guaranty fund is backing up the issuer.

Isn't that the case with any annuity? IOW aren't all annuity holders are subject to the health of the insurance company behind it? Then if the insurer goes belly up, the state comes in.

I am not challenging; just trying to understand.

 

[OldShooter]

Isn't that the case with any annuity? IOW aren't all annuity holders are subject to the health of the insurance company behind it? Then if the insurer goes belly up, the state comes in.

I am not challenging; just trying to understand.

Yes, of course. I was just trying to contrast MYGAs, when viewed as CD substitutes, to the backing of 'real' CDs.

 

[Koolau]

My annuity is EE bonds. $40k a year starting at my age of 65/wife 60.

Not sure I understand. Are you saying you have purchased a stack of EE bonds which (at age 65/60) will be cashed in at the rate of $40K/year? If so, how do you deal with inflation? Sorry if I have misinterpreted your plan as YMMV.

 

[Running_Man]

I purchased an annuity in 2007 that was paying 4 percent and increased by 4 percent per year with a guarenty period of 28 years so another 14 years.

At the time I asked for advice here it stating my reasons was I thought inflation would be well contained over the following 30years expecting 3-3 1/2 percent so this would increase over actual inflation. Through the arguements I invested only 1/4 of the amount I was considering. It is paying 80% more next year than it paid in the first year and reported CPI by the US is up 34 percent over that period, had I invested in say inflation index bonds instead. I am very happy with the investment, even after aging 14 years I could not touch the original deal I got, never mind. The income stream today going up by 4% a year would cost about 2.05 times what I paid for it in 2007.