Annuities and their role in our investing plan

[cute fuzzy bunny]

So whats the actual opinion base on this investment option? Curious as to the level of "hostility" and unacceptance.

I voted #2.

 

[justin]

I'm with you CFB, number 2. I could imagine scenarios where I would prefer an annuity for part of my portfolio if the numbers worked.

 

[FinanceDude]

AM eagerly awaiting the results.............

 

[Nords]

I've considered them-- in our situation the numbers don't make sense.

 

[cute fuzzy bunny]

Maybe a little early to say for sure but it looks like 5% (at this time a single) lovers, 5% (also a single) haters and 90% open minded. Not exactly a board-wide hostility to the idea or really any significant hostility at all.

Pretty much the distribution I'd have expected to be honest.

Of course, having made the statement i've poisoned the future results as all the outliers will leap forward to vote while the mainstream will stroll on, feeling their position has already been stated. Or the wise guys will weigh in on one end or the other to make it 'funny'.

Polls are such fun.

 

[cute fuzzy bunny]

By the way, you CAN vote for more than one option.

I way almost more interested in people who have actually bought one and what they're feelings were on them after the fact.

 

[Mysto]

I was going to buy a 10 year annuity to start my retirement but discovered that I could "self-annuitize" at a several thousand dollar advantage and that's the way I have gone. If the numbers made sense I'd do it but with current interest rate payout I can't see an advantage to me.

 

[grumpy]

I have about 10% of my investments in a variable annuity. However, I did not buy this annuity, I inherited it. The surrender charge period had ended before my mother passed away and the investment had never been annuitized. Thus, I can withdraw funds without charges if I need to. The investment options available under the annuity are decent and the ability to continue tax deferred growth make it worth while to keep it. Despite the underlying fees, the annuity has gained value at an average annual rate of over 10% for the last 6 years. I am comfortable holding it even though I would not put any additional $'s into it or into any other annuity.

Grumpy

 

[bssc]

I also voted 2.

 

[ERD50]

I plugged some numbers into the Vanguard instant quote. I was a bit surprised, this might make some sense for diversification purposes (assuming I understand it - I did not take the time to read all the fine print).

Me: age 52; DW; age 51. I chose joint with lifetime payments and CPI increases. I first entered zero guaranteed paid years and increased it until the annual payment started to drop a bit, that was (surprising to me, 30 years guaranteed).

A $500K payment would guarantee just under $20K annual (4%) inflation adjusted, minimum 30 year pay out. That is all I would plan to take out on my own- but this would trade the risk of outliving the withdraws with the lost opportunity to pass more to heirs. So, I wouldn't want to do it with the whole nest egg, but I think it could be worth considering for 1/3 or so?

Does that make sense? Vanguard is sure they can give me 4% and have money left over at the end (on average)? I guess they don't need to make much more - after all, they are playing with *my* money. But, they do need to come up with the 4% and CPI w/o consuming all the princple. Looking from the other side - I guess that makes 4% withdraws pretty safe, but this 'buys' you the pool of risk ('trades' would be a better word), rather than the single risk of outliving your stash, or a bad investment.

-ERD50

 

[d]

at this point my spouse's health makes this a decision which is best delayed

 

[cute fuzzy bunny]

ERD50 - you've sent me off to run some numbers. Last time I checked the very same thing you're looking at, the returns were closer to a 3.1-3.4% equivalent 'swr'.

 

[cute fuzzy bunny]

I think the delta in our results may be the age difference. I put in a for a cpi indexed joint survivor, no guaranteed years and got a 3.1% 'rate'.

That leaves this temporarily on the "numbers dont work for me right now, but i'll look again next year" pile.

 

[clifp]

I voted #2 like the rest of the group. However, a more interesting question would be when you do you consider the numbers to make sense? To which I would vote NEVER.

 

[yakers]

I was about to vote #2 because it is remotely possible that an annuity could be useful to someone. Then I looked at my circumstances, I expect a COLAd pension, so no annuity for me regardless of the numbers. I need to collect some assets for possible retirement projects/travel and hopefully to have something left for the kids. So #1 it is for me.

 

[rmark]

Useful as stable cash flow for my wife, assuming she survives me.

 

[cute fuzzy bunny]

I voted #2 like the rest of the group. However, a more interesting question would be when you do you consider the numbers to make sense? To which I would vote NEVER.

So if annuity offers became available that were more attractive than most fixed income, and you had lots of relatives in their 90's, and you were in excellent health...still wouldnt go for it?

 

[ERD50]

I think the delta in our results may be the age difference. I put in a for a cpi indexed joint survivor, no guaranteed years and got a 3.1% 'rate'.

That leaves this temporarily on the "numbers dont work for me right now, but i'll look again next year" pile.

Yep, I think I will look again every few years. [wait a minute, be right back.....]

Well, through the 'magic' of computers, I just did that - I made myself 10 years younger (fudged my birth-date) and got about 3.4% with 30 yr guaranteed. I then made myself 10 years older (not as much fun), reduced the guarantee to 20 years, and I got about 4.4%.

I was also choosing the 'no cancelation' version - didn't try the other way to see what that did to the numbers.

Considering we might want to get more conservative with our money as we age, maybe this makes sense? Getting 4.4% plus CPI may be difficult? This might be one of those areas where a low cost annuity like Vanguard (not the high-fee, high commission types) is a reasonable pooling of risk. Most of us buy insurance on our house and consider it a reasonable trade-off. Maybe this is in the same bucket? I would still only consider a portion of the nest egg, and I would need to do a ton more work before committing that kind of money. An 'instant quote' is just ballpark talk.

Oh, and yakers makes a good point - but no COLA pension for me.

-ERD50

 

[rs0460a]

One of many articles on the subject:

http://money.cnn.com/2006/09/07/pf/retirement/retire0610_updegrave.moneymag/index.htm

- Ron

 

[brewer12345]

Just be aware that the actual insurer you are taking credit risk from is not Vanguard. IIRC, it is AIG. Better be comfy with that before you hand over a stack of Franklins.

 

[ERD50]

Just be aware that the actual insurer you are taking credit risk from is not Vanguard. IIRC, it is AIG. Better be comfy with that before you hand over a stack of Franklins.

Yes, that has always bothered me about these annuities. Who the heck knows just how solvent *any* company might be 30 or 40 years from now? And, the risk of running out of money in 30 to 40 years is the *only* reason I would consider these in the first place.

The fixed annuity guarantee is based on the claims-paying ability of AIG Life Insurance Company and American International Life Assurance Company of New York (in New York State only), which are the insurance companies that issue the annuity.

-ERD50

 

[FinanceDude]

Just be aware that the actual insurer you are taking credit risk from is not Vanguard. IIRC, it is AIG. Better be comfy with that before you hand over a stack of Franklins.

Agreed..........but better to buy from AIG, Pacific Life, ING, or John Hancock than "Southwestern Iowa Reserve Life"...........

 

[brewer12345]

Agreed..........but better to buy from AIG, Pacific Life, ING, or John Hancock than "Southwestern Iowa Reserve Life"...........

Or maybe not. Life insurers are extremely difficult for professional credit people to make sense of. How well is a layman going to do?

 

[shiny]

I voted that we bought one and would do it again.

To me it is just peace of mind money - I think of it as my back up to social security. I don't feel comfortable recommending this to others though since I know that it was sort of a fear-based investment. It was such a small part of our portfolio - just a little diversification/insurance.

 

[cute fuzzy bunny]

An interesting site:

http://www.annuityfyi.com/

Another interesting question: did you read the prospectus on your annuity and do you fully understand it? My wifes annuity/pension through her hospital employment runs to about 540 pages. I actually did read it yet find that there are 3-4 areas that i'm not particularly comfortable I 'get'. Mostly involving how we would get the money out if we chose to do so before the annuity is actually engaged.