Seeking advise on New Annuity investments

[Spock]

Do I read the OP's post correctly? Some of those returns are capped at 5%? SP500 has gained 27% YTD as of today. Wouldn't that mean you are ~ 22% down from what an SP500 fund would be this year! Another of the annuities returns only 80% of the market gains leaving about 5% of this years possible gains on the table.

But if the market is down 25%, or Japan style up 1% for a decade OP still gets his annuity payment. Thats the tradeoff. You pass up big gains for a forever steady income regardless of what the market does.

 

[lesjrp]

To the OP, are you already in 200K of annuities? If so you might want to ask how, or when to get out, and if that is the better move. The tax hit will be the issue.

 

[CRLLS]

But if the market is down 25%, or Japan style up 1% for a decade OP still gets his annuity payment. Thats the tradeoff. You pass up big gains for a forever steady income regardless of what the market does.

The OP wrote:

• Option 1 – S&P 500: 100% total annual growth upto current cap of 5%-10 year surrender

Doesn't the 100% mean that he gets growth matching the SP500 up to 5%? If the SP500 gains 1% he gets 1% and if the SP moves +15% he gets +5% max? I don't claim to be an annuity expert. I'm just reading the one sentence. Somewhere in the 75+ pages of the contract there may be a "no loss" clause preventing any loss or something like that. I really don't know.

 

[pb4uski]

OP seems MIA.

 

[24601NoMore]

But if the market is down 25%, or Japan style up 1% for a decade OP still gets his annuity payment. Thats the tradeoff. You pass up big gains for a forever steady income regardless of what the market does.

True, but how much of that is return of the investor's original capital vs actual market returns or dividends on that investment?

What a deal - give an insurance company a big pile of your money, and have them pay it back to you in chunks over time - "guaranteed" while calling it "income" (which it's not - it's mostly return of capital). It's a shame most people don't realize that you are getting YOUR OWN MONEY paid back to you as a large part of the "guaranteed" payment.

Suggestion - calculate the percentage return you are "guaranteed", leaving return of your own original capital out of the equation. It's likely less than 2-3% best case, and that's if you're REALLY lucky. Heck, even the average intermediate-term bond fund beats that, with little long-term risk.

 

[OldShooter]

... Doesn't the 100% mean that he gets growth matching the SP500 up to 5%? ...

One game these hucksters play is to define the growth of the S&P being the sticker price growth, excluding dividends -- not total return. This lets the house capture 2-4% return without the marks really seeing what is going on.

The bold print giveth and the fine print taketh away.

 

[Red Badger]

OP seems MIA.

Yup. OP was asking which to choose, not yes/no. Cold showers are usually short.

 

[ERD50]

OP seems MIA.

Patience!

Judging from history (click his username and select "find more posts by..."), he'll be back in 4 years or so, asking about annuities again, and once again, most of the responses will be "run!".

-ERD50

 

[REWahoo]

...he'll be back in 4 years or so, asking about annuities again, and once again, most of the responses will be "run!".

Which is what he has apparently done, once again.

 

[pb4uski]

The OP wrote:



Doesn't the 100% mean that he gets growth matching the SP500 up to 5%? If the SP500 gains 1% he gets 1% and if the SP moves +15% he gets +5% max? I don't claim to be an annuity expert. I'm just reading the one sentence. Somewhere in the 75+ pages of the contract there may be a "no loss" clause preventing any loss or something like that. I really don't know.

Yes, that is a common structure... they get growth up to 5% with a 0% floor... so they effectively give up all growth over 5% in exxchange for the 0% floor.

And to be clear, the insurer doesn't buy the index and gain the 10% difference in the example you wrote... they buy derivatives that broadly match the obligation to the policyholder and invest the money in bonds... their spread is the excess of the interest on the bonds over the cost of the derivatives. In reality it gets much more complicated but the above is the general idea.

 

[travelover]

The appeal of annuities is that no matter what the stock market does, you still get a steady income. And since you are getting back part of your principal with every payment, the return seems higher than what you'd get from a CD or bond fund. The downside is that the downside is harder to grasp.

 

[pb4uski]

The appeal of annuities is that no matter what the stock market does, you still get a steady income. And since you are getting back part of your principal with very payment, the return seems higher than what you'd get from a CD or bond fund. The downside is that the downside is harder to grasp.

The above is true for payout annuities, but the OP was referring to deferred annuities that are not yet paying our any income/benefits... very few deferred annuities ever get annuitized.

The can be "plain-vanilla" and similar to a CD with a fixed interest rate or the more complicated structures in the OP.

 

[travelover]

The above is true for payout annuities, but the OP was referring to deferred annuities that are not yet paying our any income/benefits... very few deferred annuities ever get annuitized.

These can be "plain-vanilla" and similar to a CD with a fixed interest rate or the more complicated structures in the OP.

Good point. Even worse.

 

[racy]

The only good thing about annuities is the free steak dinner that occasionally accompanies the sales pitch, which itself can be an evening of amusement!

 

[brewer12345]

The OP wrote:



Doesn't the 100% mean that he gets growth matching the SP500 up to 5%? If the SP500 gains 1% he gets 1% and if the SP moves +15% he gets +5% max? I don't claim to be an annuity expert. I'm just reading the one sentence. Somewhere in the 75+ pages of the contract there may be a "no loss" clause preventing any loss or something like that. I really don't know.

These contracts are basically a bull call spread tacked to a bond. The are lots of ways for the insurer to profit and few ways for the policyholder.

 

[rhurhurun]

Thank you all for your comments. sorry about the delayed response due to travel. My wife & me read every post here and are grateful for the advise. We decided on the 'RUN' advise and so dropped considering any of the above annuities. We decided to take sometime on it and consider vanguard funds. Will come back to seek some advise on the same once we get better educated on those funds. Again appreciate all the advise here and steering us in the right direction. Happy holidays.

 

[youbet]

I totally disagree with bringing these questions to the person trying to sell you these products. If you are going to ask these questions, ask them of an independent 3rd party.

Totally agree.

Going back to the salesperson and trying to ask questions to challenge the real value of what he/she is trying to sell you is asking for unnecessary mental anguish. The salesperson is likely fully trained in the field of sales-psychology tactics and will have a portfolio of cleverly thought out answers to your questions to dump on you. You won't learn or gain a thing except possibly learning why successful salespeople are highly compensated.

And, importantly, any criticism or fact correction you are able to dish out will roll off him/her like water off a duck's back. They're completely used to it, won't be offended, won't have learned a lesson and you'll get zero satisfaction from it.

Don't waste your time or frustrate yourself.

 

[travelover]

Thank you all for your comments. sorry about the delayed response due to travel. My wife & me read every post here and are grateful for the advise. We decided on the 'RUN' advise and so dropped considering any of the above annuities. We decided to take sometime on it and consider vanguard funds. Will come back to seek some advise on the same once we get better educated on those funds. Again appreciate all the advise here and steering us in the right direction. Happy holidays.

Congratulations. You will look back in the future and say, "Whew!".

 

[mickeyd]

$200,000 X 5% annuity commission = $10,000


Salesman will say "I get paid by the insurance company. You do not have to pay for my service."


Try very hard to NOT to believe this lie.

 

[jjuneau]

A host of great performing mutual funds available from T. Rowe Price, Fidelity, Vanguard, others. Easy to visit their websites and explore options. Fidelity also has offices in metropolitan areas. Edward Jones has advisors even in small towns. They have conservative recommendations and give plenty of attention to your account.

 

[MRG]

A host of great performing mutual funds available from T. Rowe Price, Fidelity, Vanguard, others. Easy to visit their websites and explore options. Fidelity also has offices in metropolitan areas. Edward Jones has advisors even in small towns. They have conservative recommendations and give plenty of attention to your account.

Edward Jones is not your friend. They exist only to make your money theirs.

 

[pb4uski]

$200,000 X 5% annuity commission = $10,000


Salesman will say "I get paid by the insurance company. You do not have to pay for my service."


Try very hard to NOT to believe this lie.

It's really more of a half-truth. It is true that they get paid by the insurance company. But what is left unsaid is that if you want out early, then the insurance company collects it from you with the surrender charge.

 

[racy]

Edward Jones is not your friend. They exist only to make your money theirs.

+1
They do excel at being your "friend" though. Ed Jones' customers usually say they have a great guy taking care of their investments. yikes!!

 

[OldShooter]

Edward Jones is not your friend. They exist only to make your money theirs.

+100

 

[Chuckanut]

On an inflation adjusted basis Vanguard Wellesly is over 9x more valuable that it was 34 years ago in 1985. While neither the return nor the principal is 'guaranteed', one also has full access to one's money at any time. Perhaps that is a good substitute for an annuity?