Lifetime Income Variable Annuity

[Little Blind]

56 years old, looking to retire at 65, talking with financial guy regarding 100K in a Lifetime Income annuity (represents 15% of current nestegg) - looks good on paper to have 8% payout at 65 for rest of life - but have read threads from folks who say these are not good investments. Looking for advice or alternatives to offer a better payout in the time frame I have. I am truly not that informed about investing.

 

[brewer12345]

Run, as fast as you possibly can. If this dude shows up at the door, sic the dog on him.

 

[clifp]

+1

The reader digest version of any for annuity is that much of the money is return of your principal. So that 8% isn't an actual interest rate but based on you giving them your money for 9 year and then them gradually giving your money back when you turn 65. The name makes it sound like this a variable or equity index annuity. These are very complex products design to confuse virtually everyone.

If you don't run away, feel free to post more details on the product and the forum will be happy to provide the educate that the insurance salesman don't want you to know.

 

[obgyn65]

I would not buy it.

 

[pb4uski]

Run, as fast as you possibly can. If this dude shows up at the door, sic the dog on him.

+1 Run from the snake-oil salesman.

 

[Lakewood90712]

No , No , No, and stay away from this sales/finance guy ! A Variable Annuity is a great product, FOR THE SALESMAN , great for THE COMPANY , AND A BAD DEAL FOR YOU. Hey now, 2 out of 3 ain't bad.

Just say no.

 

[teekaymn]

I always feel very poorly informed when others talk of annuities. I know that SPIA's (single premium immediate annuities) don't have the same negative connotations as variables, but I'd love to have a brief explanation of the difference, and reasons why SPIA's are OK.

 

[Walt34]

Looking for advice or alternatives to offer a better payout in the time frame I have.

Do this:

Get off my lawn - YouTube

 

[RunningBum]

I always feel very poorly informed when others talk of annuities. I know that SPIA's (single premium immediate annuities) don't have the same negative connotations as variables, but I'd love to have a brief explanation of the difference, and reasons why SPIA's are OK.

That's a good question, and I'm not informed enough to give you the answer.

I think it would also be helpful if people gave a reason why they should run away and not buy it. You know that most people dealing with a salesman are going to be contacted again. If they say "No, I'm not interested, because some guy in the internet told me to run away", any sales guy worth his salt is going to slime his way around that. clifp is the only one who gave a decent reason, and nobody has mentioned what I assume is the #1 reason, the expenses.

 

[REWahoo]

I always feel very poorly informed when others talk of annuities. I know that SPIA's (single premium immediate annuities) don't have the same negative connotations as variables, but I'd love to have a brief explanation of the difference, and reasons why SPIA's are OK.

Someone will be along shortly with a more precise response, but the bottom line is "fees".

A bare-bones SPIA is a reasonably straightforward insurance instrument with a lot of competition from insurance companies, resulting in lower costs.

Variable annuities - complete with a jumble of bells, whistles, smoke and mirrors - are far more complex and have substantially greater (hidden) costs. As a result, they offer greater profit opportunity for the insurance co. and their salescritters. VA's complexity means the fees are often hidden and difficult to understand. The complexity also makes it difficult to compare apples to apples to other VA's, allowing snake oil salesman to sell the sizzle and leave the buyer to discover too late they were sold something that isn't at all what they thought it was.

 

[Little Blind]

I am work now but here are the base facts I can see off the quote sheet at a quick glance:

Lincoln Lifetime Income Advantage 2.0 Protected Funds (Product name FUSION)
Guarantee of principal

Contingent Deferred Sales Charge of 1%
Mortality and Expense Risk Charge of .85%
Underlying Fund Management expense of 1.09%
Elected Living Benefit charge of 1.05%
Ability to grow 5% in years with no withdrawals

Hope this helps you guys that know these things. So far everyone says stay away except for the guy selling - might be a clue there.

 

[REWahoo]

Contingent Deferred Sales Charge of 1%
Mortality and Expense Risk Charge of .85%
Underlying Fund Management expense of 1.09%
Elected Living Benefit charge of 1.05%

So you are paying 4% in fees each year. Yikes...

Oh, and if you read the 60+ pages of details about the product, you may find there are a differences in how the salesperson explained how the annuity works and how it actually does.

 

[MRG]

My DF retired from the insurance business in 1978. Don't know if variable annuitys were a product then or not, but he did sell alot of fixed.

Years later, when I was learning to invest for myself, I asked why he had no annuitys. His response was "don't go near any type of annuity product, you can do much better on your own". He did say for some folks they were fine(those that didn't understand investing).

You can also do much better, listen to the folks here!

MRG

 

[brewer12345]

I am work now but here are the base facts I can see off the quote sheet at a quick glance:

Lincoln Lifetime Income Advantage 2.0 Protected Funds (Product name FUSION)
Guarantee of principal

Contingent Deferred Sales Charge of 1%
Mortality and Expense Risk Charge of .85%
Underlying Fund Management expense of 1.09%
Elected Living Benefit charge of 1.05%
Ability to grow 5% in years with no withdrawals

Hope this helps you guys that know these things. So far everyone says stay away except for the guy selling - might be a clue there.

Holy crap! 4% in fees annually?!

 

[packrat44]

Contingent Deferred Sales Charge of 1%
Mortality and Expense Risk Charge of .85%
Underlying Fund Management expense of 1.09%
Elected Living Benefit charge of 1.05%
Ability to grow 5% in years with no withdrawals

.

So they will charge you 4%/year and limit the maximum growth during good years to 5%. They will keep any gains above 5%. You take the risk, they take any gains.

Heads they win, tails you loose. Run, Run, Run!!!!!!!!

 

[Willers]

Although I think SPIA's do have a place in some portfolios and may become attractive to some (including me) when/if interest rates rise a bit, variable annuities (VA's) are just too confusing for me.

I recently had an advisor suggest considering a variable policy as a way to fund LTC. I was skeptical, but asked him to send me a few sample policies he thought I should consider. REW's earlier comment about reading the 60+ pages was right. In my work I routinely review complex contracts and financials, but even after reading through these twice I couldn't quite define exactly what I was getting. If I can't define risk/cost/reward I don't want it.

My guess is that the policies are confusing for a reason...

 

[Lakewood90712]

Wow , 4% fees . I say buy the stock of the company, Lincoln Financial (LNC) , not the annuity products they sell. P/E is just over 11 , div. yield 1.34%. chart looks ok.

 

[Coolius]

Variable annuities are something to stay very far, far away from. They are designed to profit the salesman and the company, not you.

The fees, as the others have said are terribly high. Much of it is the salesman's commission - and that's a major reason why he's so eager to sell it to you.

If you really must consider an annuity, the only one you should look at is the SPIA. And even then, I would caution you to be very skeptical.

All the forum members have provided valuable advice, hope you follow them.

 

[Ready]

If you ever watch the Suze Orman show, from time to time someone calls in to say they bought a variable annuity and want to know what to do with it. The first thing Suze always asks is how much did you invest and what could you cash it in for now? Inevitably, the cash value always seems to be about half the investment value, even if the owner has held the investment for 5-10 years. That in itself demonstrates what a bad value they are.

But think about it from another perspective. How much commission do they pay sales people to sell bank CD's or low cost index funds? Zero, because the products just make common sense and sell for themselves.

The next time you hear from the annuity salesperson, ask him how much commission he will earn if you buy an annuity. In my experience, the higher the commission a sales person earns, the more difficult the product is to sell, likely because it's not a very good product.

 

[Little Blind]

Thanks guys - I really don't think the Annuity in this case is for me - I will stay away. I see lot's of folks said I could do better myself. Are there any training tools on this site or others that i could read to get more up to speed on investing?

 

[Midpack]

Thanks guys - I really don't think the Annuity in this case is for me - I will stay away. I see lot's of folks said I could do better myself. Are there any training tools on this site or others that i could read to get more up to speed on investing?

It will take some effort on your part, but it's not as difficult as the financial pros will lead you to believe - they make it sound difficult so you will hire them. And that tactic has worked very well from them for many [-]years[/-] generations.

Good place to start online Bogleheads

 

[obgyn65]

These reasons have already been discussed in the past. Thus the OP can google threads on this website. The main reason is mathematical in my case: my FIRE plan shows higher cash flows with deferred annuities bought in my 40s and SPIAs after age 70.

I think it would also be helpful if people gave a reason why they should run away and not buy it. .

 

[ERhoosier]

Another issue is that variable annuities may be considered investment contracts and subject to loss if the issuing company becomes insolvent.

Are You Protected If Your Insurance Company Goes Belly-Up?

Investor Tips: Variable Annuities


OTOH most 'traditional' SPAs are considered "insurance" contracts and are covered by state guaranty organizations (similar to FDIC for bank deposits) up to (typically) $100-300k.

nolhga.com :: Policyholder Information

As I understand it, those loss limits are per company (similar to FDIC loss limit including all of an individual's accounts at a specific bank).

 

[Chuckanut]

Surely, some of those fees must be a one time charge at the time of signing the contract. Are you certain they are yearly? 4% a year would tax the powers of Warren Buffet, one would think.

 

[brewer12345]

Another issue is that variable annuities may be considered investment contracts and subject to loss if the issuing company becomes insolvent.

Are You Protected If Your Insurance Company Goes Belly-Up?

Investor Tips: Variable Annuities


OTOH most 'traditional' SPAs are considered "insurance" contracts and are covered by state guaranty organizations (similar to FDIC for bank deposits) up to (typically) $100-300k.

nolhga.com :: Policyholder Information

As I understand it, those loss limits are per company (similar to FDIC loss limit including all of an individual's accounts at a specific bank).

Generally VAs are separate account products, which means the assets in the policy are segregated from the insurer's assets in the event of an insolvency. Where the rub comes in is that most people buy these things for the guarantee, and that is an obligation subject to the solvency of the insurer. If the insurer goes down, you are at risk to the extent of your guarantee's value.