Who purchased an annuity and is glad they did?

[Bikechuck]

Since I wrote the original post, I think I know what I am looking for. I am sure that most of us know that you can probably get better returns in the long run via the stock market. My question was, or is, knowing that are you still happy with your annuity purchase. Let's not hijack the conversation with things I did not ask about.

You can likely get higher returns in the stock market but a well constructed portfolio has a bond or fixed income component in addition to equities. Annuities are more appropriate substitutes for the bond portion of a portfolio.

I would not invest more than 1/3 of my portfolio in them because you need access to liquid investments to cover irregular or unexpected expenses.

 

[Luvtoride]

I have 3 separate investments called ANNUITIES yet NONE of them will pay a stream of income.
1) 3 year MYGA at a 3% fixed rate (basically a CD issued by an Insurance company)- Has about 10% of our portfolio assets and is earmarked to provide supplemental cash needed for our 1st 3 years of retirement before collecting SS

2) Lincoln Level Advantage- Indexed Variable Annuity- matures in 6 years. Indexed to S&P 500 (no cap with 20% downside protection). Is up 36% from original investment 15 months ago with no fees to us. Represents about 15% of our invested assets when purchased. After 6 years we will get full payout of value to reinvest or rollover. We will not be of RMD age yet at that time.

3) Prudential Flexguard- Index Variable Annuity- 6 year term like the Lincoln, with return = 100% of S&P 500 Index up to 20% increase and 110% of S&P 500 over 20% return in 6 years. 5% downside protection. Like the Lincoln, we will get full distribution of value at 6 year maturity. No fees to us. About 6% of our invested assets.

Yes, I'm happy with these investments and they fit a specific strategic spot in our investment portfolio. As stated above, the term Annuties is very broad and they way they are used can be different for specific circumstances.

 

[RunningBum]

My father would probably say he is happy with the annuities he was sold. My brother has POA and I am helping him figure out a plan for their remaining years. It's really difficult to figure out what they have and what their options are. Most are some kind of variable life annuities with death benefits. He is 87 and hasn't even started the income flow on one of them. Up until recently they had more cash flow than they needed if they had started it.

Now with memory care their expenses are a lot higher so an income stream is not enough. My brother asked if we should start the annuity income flow, I said No, we need to get at that cash value for them. $1000 a month or whatever it would've given was barely going to put a dent in memory care. Fortunately they have all been in effect long enough to no longer have a surrender fee, but basically they've become a long term investment that didn't perform that well that they are now drawing down.

For a little while my brother was having trouble getting things done as he was told they needed to deal with my dad. These are local people he's been working with for years. Finally that's been straightened out.

I feel like I'm pretty good with financial information, but it took months for me to figure out just what they had and how to access it. I've got a pretty good handle on what the underlying investments are, and we'll be getting them totally out of equities with this money being totally liquidated in less than 5 years if they live that long. We are optimizing for them, not their legacy (which would be us kids). And I discovered that the equities were in their IRA, not taxable where it would be more tax efficient. I still have no idea what the overall expenses are. It appears they aren't terrible, and I'll just leave it there.

So count me as one who has never bought one, but being exposed like this has confirmed that there is no way in hell that I would buy any of these complex variable annuities. An SPIA, very possibly if/when rates are higher. I'm not locking in at these low rates.

 

[Bruno]

I had three annuitys and surrendered the Lincoln Indexed Variable Annuity. I like the other two. I annuitize first one and in the third year of 5 yr. payout. I renewed my second a MYGA in 2019 @3.92%. I will have to find other money to use between the two for about a year. MYGA are the only annuitys i would buy.

 

[COcheesehead]

There are as many types of annuities as there are bonds, but people tend to think of each one as a single entity, which is a mistake.

 

[Finance Dave]

I have a lump sum DC cash balance plan with Megacorp. I left the company 10 years ago and I have the option to take the lump sum or convert it to an annuity. They still contribute to it every month for me, but the amount is small. When you work for them, they contribute prime+1%/month, but after you leave it's prime +.5%.

I will probably convert it to an annuity. I think of it as a longevity product. It is only about 7% of our overall retirement savings as a lump sum. The only thing I don't like is that it's not COLA adjusted, so it won't be worth much when I'm 90. They won't let me defer taking it past 65, although I could take the lump sum at 65, and THEN buy a deferred annuity with it. The rate they show is attractive compared to what I can buy on the open market though. When combined with SS, this will cover about 60% of our living costs.

 

[Closet_Gamer]

I didn't buy one but my Mom did. When I started to help on her finances I saw the actual terms and got quite angry. The evil/incompetent FA that sold them to her was then trying to roll her into a new 7-year annuity at the age of 87.

(This ******** also had her invested across 22 different mutual funds, all of them actively managed, most with fees >0.75% and often 1.5%, and some with loads. Beyond the annual annuity fee she was also paying sky high fees on the funds within the annuity.

If I had more time on my hands, I might have considered some sort of action against Morgan Stanley who employed this con artist.)

I pried her money out of the annuity, paid some taxes to do so, and put it into a conservative investment portfolio that is nominally yielding a bit less but also has over $5000/year of expenses removed (a lot on her portfolio).

So, in my one real world interaction with an annuity, I would say I wish she hadn't done that.

All that said --- simple immediate/deferred annuities do seem to be a valuable option in specific situations as part of an AA. For example, if the guaranteed income stream allowed you to shift more of the remainder into stocks without sacrificing survivability of the portfolio under duress. But those choices are in front of me and I've yet to actually make them.

 

[ShokWaveRider]

MYGAs may be the way to go. One can withdraw up to 10% per year after the first year with some of them, it varies by annuity.

You can get accurate rates at these 3 websites.

https://www.blueprintincome.com/

https://www.stantheannuityman.com/myga-rates

https://www.immediateannuities.com/deferred-annuities/

 

[DektolMan]

My DW each have an annuity originally with Vanguard then Transamerica took them over. We funded them when we capped out of funding our Ira's with the thought that at age 65 convert it to a monthly payment from the insurance company.


Talking with the Vanguard rep he suggested that most people just start systematic withdrawals from their annuity and never annuitize the annuity. This is what we have done and is working well for us. We still have control over the withdrawals, can stop them, or increase or decrease monthly payments.

 

[zinger1457]

I would imagine that timing is a factor, I'm sure many that purchased a SPIA >10 years ago are fairly happy with the payout, especially when seeing that their payout is probably more than 50% of what they would get for a similar product today.

 

[OldShooter]

... If I had more time on my hands, I might have considered some sort of action against Morgan Stanley who employed this con artist.) ...

Relatively low effort: As for contact information for the rep's compliance officer and write a nice letter asserting that your mom was sold inappropriate investments. See what you get. Beat the drum again, see what you get.

If you have not done it, be sure to run a brokercheck (https://brokercheck.finra.org/) on the guy. You may find that he has a track record of customer disputes. If so, be sure to flag that in your letter to the compliance guy.

The broker will not want to give you the compliance contact information. If you fail to get it that way, call and talk to the M-S branch manager. The BM will try to pump you for information on your complaint; demur and tell him/her you will put it in the letter. You don't want to negotiate this stuff verbally with no record. (In our state it is legal to record a telecon if one of the parties -- you -- know its being recorded. Just sayin')

 

[Midpack]

I would think you can’t know if you’re happy with buying an annuity until much later in life when inflation has taken its toll? I’d expect annuitants to be happy in the first 5-10 years.

Kinda like people who post their plan is working a couple years into retirement? You won’t know if your plan was successful until you (both) go poof?

 

[TheWizard]

I had a decently large 403(b) accumulation with TIAA from forty years of employment. About half of that accumulation was from employer contributions, the other half from my contribution.

While several of the TIAA offerings during the accumulation phase have "annuity" in their name, they function the same as mutual funds and can be transferred into pure mutual funds, typically from a few low-cost providers, depending on your employer plan.
So, for the most part, I was not locked into any annuities during my accumulation phase.

When I retired close to nine years ago at age 63, I wanted a hefty retirement income, so I "annuitized" about half of my 403(b) accumulation for lifetime monthly income with a ten year guarantee, as a single person. Only a small part (15%) of this immediate annuitization was in the guaranteed "fixed" income TIAA Traditional.

The majority of my annuitized funds were in funds based on commercial real estate (TREA) (65%) and the broad stock market (CREF Stock) (20%).
As a result, my monthly annuity income has increased a bit most months and is now over $8000.

When combined with my age 70 SS, my retirement income exceeds my expenses almost every month, meaning I'm adding additional funds to my investment portfolio, not withdrawing from it.

So I'm happy with my decision...

 

[GravitySucks]

I bought a defer single premium annuity that started paying out a year and a half ago.
It was insurance. Between that and SS at 62 I could cover essential expenses if I really screwed up bad. I view it as a perpetual bond ladder.
I'm happy. It served its purpose and now throws off a bit of fun money. Would the money have done better in equities? Yup, but that's not the point.

 

[Bryan Barnfellow]

Like TheWizard (post 38), I annuitized a TIAA-CREF 403(b) accumulation as a single premium immediate annuity. A small portion of my total purchase was in the Real Estate portfolio, so its payout is subject to variability due to investment performance. The other 95% was in the TIAA traditional annuity, which allows for some annual payout increases beyond the original amount if TIAA has surplus funds (likely due to excess mortality and investment performance of TIAA overall). They announce these increases, if any, at the end of each year, for the following year.

Note especially that TIAA constructs the initial total annual payment using the investment performance of your historical accumulations in various defined tranches during the years you (and your employer) contributed the funds. Then, of course, mortality credits are added, which are determined by your age at time of annuitization.

It's a rather complex calculation, which TIAA allow you to model, using some variables, before you make a decision.

So, here are the numbers:

Original Purchase Amount: $776,000.
Year Purchased: 2015
Full Year Payouts:
2016: $46,258 (initial 6% "return")
2017: $46,494 (0.51% increase)
2018: $46,908 (0.89% increase)
2019: $47,247 (0.72% increase)
2020: $47,787 (1.14% increase)
2021: $47,827 (0.08% increase) This represents a 6.2% return on the initial purchase amount
2022: I will know as of 22 December next year's total

Over five years, the annual payout increased $1,569 (3.4% cumulative)
Total payout has been $305,521 (2016-2021, plus half year of 2015)
Total payout as percent of Purchase Price: 39.4%

I use this as a floor for our annual income and essentially a bond substitute--we own very, very little in bonds via one Vanguard balanced mutual fund). We also receive US SS, Swiss SS, and a Swiss pension. These, plus the TIAA annuity provide about 58% of our income and have allowed us to moderately increase our risk exposure in our dividend growth focused stock portfolio, which provides the other 42%.

This model has served us quite well so far and we sleep well at night.

Hope this helps the OP.

-BB

 

[Koolau]

My (newer) MYGA and older SPDAs constitute perhaps 8% of my portfolio. I look at them as a substitute for CDs and also think of them as part of my bond/fixed portion of the port. On average they grow at about 4% guaranteed. Not great, but better than the proverbial stick in the eye.

I once was sold an "Indexed" annuity. It sounded good 25 years ago. It was supposed to capture the ups of the market but not go down when the market slipped. It turned out to be a very good deal for the saleswoman. For me, not so much. There were so many fees that I think my final return was in the 3% range/year. I could have gotten that in a CD at the time with much less restriction on the ability to get the money out.

I have no plans to ever annuitize my MYGA/SPDAs though never say never.

YMMV

 

[FREE866]

Variable annuities are a fancy insurance product that invests in costly mutual funds.


For anyone claiming to be satisfied with a variable annuity I would encourage you to call the insurance company, NOT the person that sold them to you, and ask what are the annual fees, sub account fees, M&E expenses, and possible surrender charges when liquidating.


Typically you're looking at 2-5% per year and that's in addition to the mutual fund fees that are baked in.

 

[OldShooter]

... For anyone claiming to be satisfied with a variable annuity I would encourage you to call the insurance company, NOT the person that sold them to you, and ask what are the annual fees, sub account fees, M&E expenses, and possible surrender charges when liquidating. ...

Easier and more accurate: download the prospectus PDF and do text searches for "fee," "charge," and other key words.

The other really important thing is to determine what index is being used for reference. Most common reference seems to be the sticker price of the S&P 500. IOW the ratio of the year-ending and the year-beginning values expressed as a percentage. The real index return, though, is this number PLUS the dividend yield during the year. Effectively the insurance company is keeping the dividend yield for itself by hiding it from its clients. Historically this is 3% +/-. https://www.multpl.com/s-p-500-dividend-yield

 

[Koolau]

Variable annuities are a fancy insurance product that invests in costly mutual funds.


For anyone claiming to be satisfied with a variable annuity I would encourage you to call the insurance company, NOT the person that sold them to you, and ask what are the annual fees, sub account fees, M&E expenses, and possible surrender charges when liquidating.


Typically you're looking at 2-5% per year and that's in addition to the mutual fund fees that are baked in.

Yes, you can always tell the "bad" investments as they are typically offered at "free" dinners. YMMV

 

[joedila]

When we retired 10 years ago at ages 57/58, we decided to purchase annuities from Fidelity to provide us with $1600 monthly income, as we needed a steady source of income to pay essential expenses. We realized that we could have tapped into our IRA's on a monthly basis for the income, but we liked the idea of having this monthly income stream not tied to the stock market. At the time, we were paying for health insurance on our own, my state govt pension did not start until I turned 60, and it was too early for SS. I really have no regrets - it filled our need for a steady income...and now with my wife collecting full SS and me collecting a spousal benefit (I am waiting till 70 for my full SS), we have more income than we need -- and still have about $1.4M in Roth and Regular IRA's that we are not yet touching. The purchase of the annuities was paid for by cashing in on some whole life insurance policies that I was glad to get rid of (I know, we all make some mistakes, don't we?) plus a little out of our regular IRA's. Bottom line, it worked out fine for us....some may disagree, but I have no regrets.

 

[TheWizard]

Variable annuities are a fancy insurance product that invests in costly mutual funds.


For anyone claiming to be satisfied with a variable annuity I would encourage you to call the insurance company, NOT the person that sold them to you, and ask what are the annual fees, sub account fees, M&E expenses, and possible surrender charges when liquidating.


Typically you're looking at 2-5% per year and that's in addition to the mutual fund fees that are baked in.

I would almost never recommend that people get into annuities, variable or otherwise, before the day that they retire.

At that point, or maybe later, doing an immediate annuitization of a certain amount could be a fun idea.

And based on my own experience, the only place I would do an Immediate Variable Annuity is with TIAA.
They have a simple 4% AIR model with no caps or guarantees.
At my age now, I have no interest in comparing other insurance company VAs with the ones from TIAA, sorry...

 

[Tracer]

12 years ago I purchased two SPIA's during a favorable interest environment with after tax funds from an inheritance. The monthly payouts I receive from these annuities are largely tax-free and represent a good chunk of my income along with SS. Because of this I have been able to let my IRA's and Roth IRA grow without taping into them to live on. In a couple of years I will have gotten back my entire original investment with payouts continuing for the rest of my life. So yes I'm glad I made this purchase.

I also purchased a MYGA years ago earning 3% that I still hold on to today even after it's 5 year maturity has past. These two types of annuities are the only types I would ever consider purchasing.

 

[MRG]

Yes, you can always tell the "bad" investments as they are typically offered at "free" dinners. YMMV

+1
Annuities that require salespeople are generally not great for the consumers. I bought a MYGA 18 months ago and probably will continue to keep it active for the foreseeable future as a CD replacement.

 

[mickeyd]

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

 

[TheWizard]

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

Not sure who SOME of us or the rest of us are, but I had an accumulation of almost $2M at start of retirement, as a single person.

I'm sure I could have gotten by on $80k to $100k per year before starting age 70 SS.

But instead, I annuitized a goodly portion of my tax-deferred accumulation with TIAA at the outset, hoping that I would live long enough to make it work out.

And I have, thus far, at age 72 almost.
And my TIAA annuity payouts have increased year after year since 2013 to the extent that I no longer withdraw from my portfolio for spending.
Instead, I add new money to my portfolio almost every month, and this is before starting RMDs in 2022.

So, bottom line, payout-phase immediate annuities aren't JUST for poor people anymore.

And I'm sorry that the general public doesn't have access to TIAA payout-phase annuties, both fixed (ha-ha) and variable...