Advisor Suggested Annuities?

[ShokWaveRider]

This is not the best place to ask about annuities. Annuity here are ALL lumped into one pot and I would guess most people that reply here that say "Run as fast as you can" or "they are terrible " have never owned an annuity. Not many here will say anything positive about Annuities.

The ONLY annuity we would consider is a an Multi Year Guaranteed Annuity or MYGA. This is simply a CD equivalent with an Insurance Company. the main advantage is that Tax is deferred until withdrawal. Great for managing MAGI until Medicare kicks in.

 

[jazz4cash]

The ONLY annuity we would consider is a an Multi Year Guaranteed Annuity or MYGA. This is simply a CD equivalent with an Insurance Company. the main advantage is that Tax is deferred until withdrawal. Great for managing MAGI until Medicare kicks in.

I agree with you and Bruno, but I might also consider other fixed rate annuity types. I’m pretty sure I’ll be getting a MYGA later this year when my next CD matures. It’s paying 3.25 for 3 yrs.

 

[racy]

The only thing good about annuities is the occasionally offered free steak dinner to listen to the sales pitch. So, don't buy one now; hold out for the free dinner

 

[SnowballCamper]

Sounds like your asset allocation might be out of whack... Its purpose is to buffer the stock volatility so that you don't panic sell in the drop. If this drop in stock price causes you to sell, then your asset allocation is/was wrong. If you can ride it out, then your asset allocation was/is correct. Personally, as long as it isn't degrading my sleep at night, I'll stick with my allocation.

A decent asset allocation calculator tries to gauge your personal risk aversion. Another part of the process is to consider what fixed income you will have in retirement, i.e. social security, and pension...as a teacher? I presume you have some pension. This calculator takes fixed income into consideration, and so it might be helpful to do it as an exercise to alleviate some anxiety. I doubt it would hurt...

https://www.aacalc.com

 

[timo2]

Like anything, annuities are tools. I have a small one to fill in a potential gap in my survivor benefits for DW. Upon my death my pension is cut to 50%, so a small annuity fills in that loss. That enables me to not have to worry about her investment IQ at a hopefully advanced age. But I absolutely agree with the sentiment here regarding annuity salespeople. My 80 yr old MIL almost got stuck with one with her last lump of money, and she ended up needing that money for terminal nursing home care.

 

[Bruno]

I agree with you and Bruno, but I might also consider other fixed rate annuity types. I’m pretty sure I’ll be getting a MYGA later this year when my next CD matures. It’s paying 3.25 for 3 yrs.

This annuity is for 5 years. The lowest surrender charge is 5% except for 30 days after it matures. I have renewed this annuity for another 5 years. I was going to annuitize it but this company only pays 1% during that 5 years. I was able to get 10% FREE withdrawal each year and will use the free withdrawal to spread the tax liability our over this 5 years. If they don't offer a better annuitize rate then take it all out at the end of the contract. Right now its paying 3.60% for 5 years.

https://sslco.com/content/personal-choice

 

[OldShooter]

Remember a fixed annuity is fixed in dollars only, it is not fixed in buying power. Over 20 or 30 years its buying power could easily be cut in half by inflation.

 

[Bruno]

Remember a fixed annuity is fixed in dollars only, it is not fixed in buying power. Over 20 or 30 years its buying power could easily be cut in half by inflation.

Dear OldShooter,

Sometimes it's not ALL about the money. For a long time 4% withdrawal was ok to live on and now ppl think you need 4% with COLA. Maybe some of us are not going to live another 20 or 30 years. Its what makes you sleep better at night once you are RETIRED. I know some people that have there fingers crossed after this last turndown. Like my annuities and dividend funds they still paid the SAME this month.

 

[jazz4cash]

Like anything, annuities are tools. I have a small one to fill in a potential gap in my survivor benefits for DW. Upon my death my pension is cut to 50%, so a small annuity fills in that loss. That enables me to not have to worry about her investment IQ at a hopefully advanced age. But I absolutely agree with the sentiment here regarding annuity salespeople. My 80 yr old MIL almost got stuck with one with her last lump of money, and she ended up needing that money for terminal nursing home care.

How does that compare to using life insurance to fill the gap caused by the pension survivor benefit reduction? Many of us will also experience a significant reduction of SS benefit when one spouse dies.

 

[Tiger8693]

I consider mine and DW's SS as our annuity (COLA Adjusted) part of our portfolio. That's already 25% of future income, so all the annuity I need/want.

 

[harley]

For a long time 4% withdrawal was ok to live on and now ppl think you need 4% with COLA.

I don't accept this statement. The concept of SWR has always (AFAIK, and I've been playing in this sandbox for decades) included inflation protection as a necessary part of the formula. Sure, if you're planning to die next year a non-COLA annuity might make sense, but if you're leaving town that soon you can just live off your investments and avoid the annuity costs. But since nobody knows the length of their stay, inflation has to be a consideration. I'm not saying a SPIA has no place in the retirement strategy, but in case you're going to be around awhile you'd better have something planned to cover the rising cost of living. I remember the late 70s/early 80s. Your annuity could quite quickly become beer money facing that kind of inflation.

 

[Sunset]

This annuity is for 5 years. The lowest surrender charge is 5% except for 30 days after it matures. I have renewed this annuity for another 5 years. I was going to annuitize it but this company only pays 1% during that 5 years. I was able to get 10% FREE withdrawal each year and will use the free withdrawal to spread the tax liability our over this 5 years. If they don't offer a better annuitize rate then take it all out at the end of the contract. Right now its paying 3.60% for 5 years.

https://sslco.com/content/personal-choice

I thought the first payment out of an annuity is all the interest/earnings, so mostly fully taxable, the rest of payments is your own money being returned, so it's tax free. This destroys the idea of spreading the tax liability.

 

[pb4uski]

I thought the first payment out of an annuity is all the interest/earnings, so mostly fully taxable, the rest of payments is your own money being returned, so it's tax free. This destroys the idea of spreading the tax liability.

IIRC it depends on the type on annuity. For deferred annuity withdrawals it is taxable gain first and then basis. For life annuities there is a formula that calculates the portion of each payment that is taxable.

 

[zinger1457]

If the annuity (SPIA) is funded from a qualified tax-deferred account (IRA) then payments are taxed as income, the same as it would be for any tIRA withdrawal.

 

[capjak]

Remember a fixed annuity is fixed in dollars only, it is not fixed in buying power. Over 20 or 30 years its buying power could easily be cut in half by inflation.

A few thoughts: Since annuities are a portion of your fixed income and not a all or nothing purchase (i.e. still keep at least 50% in stock/bonds) I do not see this as that big negative as the same is true of a lot of investments. Annuities are longevity insurance and for people seeking "safety first" retirement it is probably one of the best methods (Pension/SS/Annuity). Expensive? Yes/Maybe



Isn't this similar to keeping a Bond/CD in Fixed Income that pays 3% for the rest of my life? True my heirs do not get the remainder of the bond (assuming non survivor benefit of SPIA, if joint than the survivor will get continued payments) but if the SPIA has a payout of pays 5/6/7% of premium, I may feel more inclined to increase my stock holdings knowing my expenses are paid for several years and improve my investment behavior (less market timing/panic). If I need a boost in income perhaps I purchase another SPIA in 10 years (like a bond) if interest rates/SPIA rates increase.

With the current prognostications for low interest rates and low inflation it may be good enough to purchase a non-COLA SPIA vs a 2 or 3% increase SPIA

 

[timo2]

How does that compare to using life insurance to fill the gap caused by the pension survivor benefit reduction? Many of us will also experience a significant reduction of SS benefit when one spouse dies.

Yes, if you can get insurance, that is probably a better financial alternative to filling that gap. The insurance $$ still has to be managed by the spouse, so it is up to each individual case as to their financial acuity as to what to do with those funds.

My MIL was taken advantage of by a neighbor when she was really too trusting near the end of her life. They didn't get any money, but it appeared she became ill just before she was about to start writing checks.

 

[Bruno]

I thought the first payment out of an annuity is all the interest/earnings, so mostly fully taxable, the rest of payments is your own money being returned, so it's tax free. This destroys the idea of spreading the tax liability.

I am NO annuity expert but can tell you how mine is working. If you take a withdraw from an annuity I was told " last money in is first money out". The free 10% I will take each year will be all interest and TAXED yearly. This will allow me to stretch 10 years of interest out over 5 years. I thought this would be smart to try and stay in a lower tax bracket.

ONCE you annuitize it changes. This annuity was a purchased with non-qualified money (cash). I get a check for the next 5 years and only a portion of the interest is applied to each check. I pay taxes on 16% of each check. This also help spread out the interest out over 5 years.

Hope i explained it good enough for people to understand.

 

[Bruno]

I don't accept this statement. The concept of SWR has always (AFAIK, and I've been playing in this sandbox for decades) included inflation protection as a necessary part of the formula. Sure, if you're planning to die next year a non-COLA annuity might make sense, but if you're leaving town that soon you can just live off your investments and avoid the annuity costs. But since nobody knows the length of their stay, inflation has to be a consideration. I'm not saying a SPIA has no place in the retirement strategy, but in case you're going to be around awhile you'd better have something planned to cover the rising cost of living. I remember the late 70s/early 80s. Your annuity could quite quickly become beer money facing that kind of inflation.

Dear Harley,
I would think if you been around that long you would have figured out " Not ONE PLAN fits everyone. These annuities i have are a small part of my BIG picture. ANNUITY COST?? maybe i need to be buying your annuities. I am buying ONLY fixed deferred annuities. My annuities have never cost me anything. When i buy a 200k annuity that is what i get plus interest over so many years. If i take a early withdrawal and break the contract yes it could cost me.

 

[Badger]

If you don't understand it then you should not be investing in it. If you do understand it then you probably don't need an advisor.



Cheers!

 

[Perryinva]

Did the OP mention her age? DW was asking me about an annuity after hearing ads based on the recent market rout. Since we are 67 & 62, I told her delaying my SS is our annuity. About an extra $20k/yr that can be free if I live long enough...it “only” costs $2500/m for 6 years starting Jan 2021.

 

[Sunset]

I am NO annuity expert but can tell you how mine is working. If you take a withdraw from an annuity I was told " last money in is first money out". The free 10% I will take each year will be all interest and TAXED yearly. This will allow me to stretch 10 years of interest out over 5 years. I thought this would be smart to try and stay in a lower tax bracket.

ONCE you annuitize it changes. This annuity was a purchased with non-qualified money (cash). I get a check for the next 5 years and only a portion of the interest is applied to each check. I pay taxes on 16% of each check. This also help spread out the interest out over 5 years.

Hope i explained it good enough for people to understand.

Great detail.

Thanks.........

 

[jimbee]

Dear Harley,
I would think if you been around that long you would have figured out " Not ONE PLAN fits everyone. These annuities i have are a small part of my BIG picture. ANNUITY COST?? maybe i need to be buying your annuities. I am buying ONLY fixed deferred annuities. My annuities have never cost me anything. When i buy a 200k annuity that is what i get plus interest over so many years. If i take a early withdrawal and break the contract yes it could cost me.

You ignored Harley's point regarding your inaccurate comment about inflation and SWR.

 

[pb4uski]

... Annuity here are ALL lumped into one pot and I would guess most people that reply here that say "Run as fast as you can" or "they are terrible " have never owned an annuity. Not many here will say anything positive about Annuities.

Not sure that is true. I think most people here understand that in some situations that a SPIA may make sense as long as other parts of the portfolio provide inflation protection since most SPIAs lack inflation protection. Also, I think many here concede that MYGAs aka plain vanilla fixed annuities are ok as a CD substitute in some situations, warts and all.

But beyond those two simple types, I think the consensus is that annuities are a bad value because of lack of transparency, complexity, excessive fees and poor returns. That would include virtually all VAs.

I've never owned an annuity and probably never will but I ran the financial reporting and analysis shop for a life insurer that sold lots of annuities so I know them well.

Also, SWR presumes that withdrawals are increased each year for inflation, so Harley makes a valid point.

 

[Chuckanut]

I don't accept this statement. The concept of SWR has always (AFAIK, and I've been playing in this sandbox for decades) included inflation protection as a necessary part of the formula. Sure, if you're planning to die next year a non-COLA annuity might make sense, but if you're leaving town that soon you can just live off your investments and avoid the annuity costs. But since nobody knows the length of their stay, inflation has to be a consideration. I'm not saying a SPIA has no place in the retirement strategy, but in case you're going to be around awhile you'd better have something planned to cover the rising cost of living. I remember the late 70s/early 80s. Your annuity could quite quickly become beer money facing that kind of inflation.

+1

Below are a series of ads for annuities from 1950 to 1961:

 

[harley]

You ignored Harley's point regarding your inaccurate comment about inflation and SWR.

Lol! That's why I didn't respond. He grabbed one relatively meaningless word out of my whole comment and ignored the real point entirely. So it wasn't worth responding to.

As far as cost, I find it difficult to believe there's absolutely no cost for any annuity, even a SPIA. Why would they offer it if they don't at least make a buck off it? Is it true? Can you get an annuity for nothing?