Annuities..You need one..Really

[Danmar]

Surely, the people on this site are not that gullable? It's amazing how older, unsophisticated people fall for these pitches. The advisor would have "perfected" his pitch over a long time. There is no free lunch.

 

[JPatrick]

I'm shocked that this would happen! The nerve of this guy. I get 3 or 4 of those invites each week, do you guys think they might try and do something like that down here in Florida?

Wow, I only average one per week. You could cut your grocery bill big time.
I'm hoping some of the preplanned funeral guys will come up with a free tank of gas deal..
And no, I don't think they would try anything shady in Florida..

 

[chinaco]

There are new insurance regulations beginning this year for annuity products.

NAIC Suitability in Annuity Transactions.

It puts more burden on Insurance companies and producers in an effort to stop inappropriate sales of annuities.

We will see if it works. Banks are hawking deferred annuities like there is no tomorrow.

 

[rescueme]

The advisor would have "perfected" his pitch over a long time. There is no free lunch.

Yes, the comedienne rarely changes the jokes; they just change the audience ...

 

[73ss454]

I think the vast majority of the folks that buy these products aren't paying attention anyway. The person selling annuities will develop a new strategy to get around any disclosures.

 

[JPatrick]

Should rates soar in the coming years ( and why wouldn't they) it will likely coincide with the period when I will want to swap my investment management time for beach time. At that point I think I'll be shopping Vanguard, FIDO, USAA for an appropriate annuity.
Perhaps an opportunity like the universal life policy I bought from USAA in the late 80's. It was yielding 12% then and is guaranteed to never fall below 4.75% which is where it sits today.

 

[ziggy29]

Not everyone has a guaranteed COLA pension.......

Right, and I think that was the point. For some people, "buying a pension" by using an SPIA can make some sense, but the circumstances need to be right. I haven't ruled it out at some point well into the future with (say) 1/3 to 1/2 of my retirement savings depending on my age, health and current interest rates (i.e. I wouldn't buy one at today's pathetic interest rates because the cost of a guaranteed income stream is much higher now).

 

[ziggy29]

NAIC Suitability in Annuity Transactions.

It puts more burden on Insurance companies and producers in an effort to stop inappropriate sales of annuities.

We will see if it works. Banks are hawking deferred annuities like there is no tomorrow.

Yeah, most of the problems in the annuity sales areas are in the deferred annuities with the high fees and surrender charges. You don't hear annuity sales people pushing SPIAs nearly as much as they push deferred annuities, especially the EIAs. And the harder someone tries to sell you something, the worse a deal it probably is for you because good products don't need a hard sell.

 

[rescueme]

Right, and I think that was the point. For some people, "buying a pension" by using an SPIA can make some sense, but the circumstances need to be right.

Exactly (that's what we did). While an annuity (more specifically an SPIA) is not the solution for everybody, it is the solution for some - such as us...

BTW, an SPIA is rarely sold by "a salesman". Costs (if any) are recovered by the issuing company when they get your premium. I've been questioned before on this (on other forums). My contract does not show any sales, or maintenance charges. If the company gets their expenses/profits from my initial premium, I don't care. As long as I have a monthly payment that I can include in my retirement income planning (for the rest of my/DW's life) and assured that our estate/beneficiaries will get something of value if we both pass before the guarantee period ends, that's what counts.

And if we live longer (probably not)? Our return will be considerably higher, since payments continue at 100% if either/both are still alive beyond the guaranteed term.

 

[Midpack]

Right, and I think that was the point. For some people, "buying a pension" by using an SPIA can make some sense, but the circumstances need to be right. I haven't ruled it out at some point well into the future with (say) 1/3 to 1/2 of my retirement savings depending on my age, health and current interest rates (i.e. I wouldn't buy one at today's pathetic interest rates because the cost of a guaranteed income stream is much higher now).

+1 - exactly my thoughts. If all goes well I will never buy one, but if I do it will be when/if I get close to my annuitization hurdle.

And at today's interest rates I'd avoid an annuity. Conversely it's a good time to take a lump sum if you have a pension option coming up in 4 months like someone I know...

 

[dgoldenz]

The rates for SPIA's right now are horrible...

 

[East Texas]

Perhaps an opportunity like the universal life policy I bought from USAA in the late 80's. It was yielding 12% then and is guaranteed to never fall below 4.75% which is where it sits today.

My guaranteed minimum for a USAA Universal Life policy is 3%.... timing is everything.

I can afford to wait until the interest rates recover before I move any monies into a USAA SPIA. I know how much I want to get monthly so when the online quote hits that number I'm getting it. I'm hoping to get the SPIA at the end of this year. Or maybe the end of next year.

 

[dgoldenz]

My guaranteed minimum for a USAA Universal Life policy is 3%.... timing is everything.

I can afford to wait until the interest rates recover before I move any monies into a USAA SPIA. I know how much I want to get monthly so when the online quote hits that number I'm getting it. I'm hoping to get the SPIA at the end of this year. Or maybe the end of next year.

Universal life insurance guaranteed interest rates are meaningless because of the cost of insurance charges. You could give people 10% guaranteed interest, but if your cost of insurance was extremely high, it wouldn't make a difference. Even a policy with a guaranteed minimum of 4.75% from the 1980's will probably crash and leave you with $0 cash vale and $0 insurance at some point in the future. The COI charges on those older policies have mostly been raised and interest rates fell, causing them to crash. Read your policy statement and ask the company for the following information:

1. How long your policy is guaranteed if you keep paying premiums
2. How long it's currently projected to last if you keep paying premiums
3. How long it's guaranteed to last if you stop paying premiums
4. How long it's currently projected to last if you stop paying premiums

 

[Koolau]

Universal life insurance guaranteed interest rates are meaningless because of the cost of insurance charges. You could give people 10% guaranteed interest, but if your cost of insurance was extremely high, it wouldn't make a difference. Even a policy with a guaranteed minimum of 4.75% from the 1980's will probably crash and leave you with $0 cash vale and $0 insurance at some point in the future. The COI charges on those older policies have mostly been raised and interest rates fell, causing them to crash. Read your policy statement and ask the company for the following information:

1. How long your policy is guaranteed if you keep paying premiums
2. How long it's currently projected to last if you keep paying premiums
3. How long it's guaranteed to last if you stop paying premiums
4. How long it's currently projected to last if you stop paying premiums

Funny you should mention this dgoldenz. Just got a call last week from an agent(?) for my Universal Life policy. He said my policy would eventually crash (not his words) if I didn't change something. He wants to talk (code word for sell?) I'll probably hear him out, but I'm looking for a possible cash out instead of keeping the policy in force. Current cash is invested in very low pay-out "safe" fund. I may have to convert to another fund if I keep the policy.

Thanks for the questions to ask. Could be useful.

 

[dgoldenz]

Funny you should mention this dgoldenz. Just got a call last week from an agent(?) for my Universal Life policy. He said my policy would eventually crash (not his words) if I didn't change something. He wants to talk (code word for sell?) I'll probably hear him out, but I'm looking for a possible cash out instead of keeping the policy in force. Current cash is invested in very low pay-out "safe" fund. I may have to convert to another fund if I keep the policy.

Thanks for the questions to ask. Could be useful.

Sounds like the agent is doing a good job in being pro-active. He is at least warning you about what may happen in the future instead of waiting until you find out for yourself, when it might be too late to do anything about it. You can cash out, keep the policy until it crashes, or if you want to keep the coverage forever and are still in reasonably good health, do a 1035 exchange into a new guaranteed universal life policy that will guarantee benefits for life even if the cash value reduces to $0. We do a lot of these for people who had the old 1980's UL policies. Very few people understand how they work, some even seem to think they can stop paying premiums and the policy will magically stay in force forever.

 

[haha]

Interesting thread.
Years ago when I first signed on to this forum, the mention of an annuity would have created an internet riot and probable stoning. These days there seems to be quite a lot of support and interest.

As ou have noticed, we on the board know everything. Of course, from time to time there is a stampede into a new (temporary) definition of just what everything is this month. Like Shiller says, all is fad. I would say the recent annuity fad on this board owes much to Mr. Otar, a gentlemen whom I have never met, and whose personal success is unknown to me. But no matter!

Ha

 

[chinaco]

Interesting Paper related to the topic.

APPLIED Risk Management During Retirement
Moshe A. Milevsky with Anna Abaimova
19 June 2005

ABSTRACT:
In this chapter we describe the 3+1 components of a prudent risk
management strategy during retirement. First, we re-emphasize the
importance and need for a balanced asset allocation containing
both equity and fixed income components, even towards the end of
the life-cycle. Second we illustrate the impact of implementing
portfolio protection, which minimizes retirement-ruin risk and
increases the sustainability of the portfolio. Third, we explain the
need for longevity insurance in the form of payout annuities, for
those who do not have a substantial defined benefit pension. We
also provide a formula that links all these risk factors together to
produce a self-contained probability of whether a given retirement
plan is sustainable or will lead to ruin. Finally, we emphasize the
importance of educating the public about the unique risks faced by
individuals during retirement. In sum, we present an APPLIED risk
management strategy for retirees and their financial advisors.

http://www.ifid.ca/pdf_workingpapers/WP2005JUNE20.pdf

 

[clifp]

Interesting thread.
Years ago when I first signed on to this forum, the mention of an annuity would have created an internet riot and probable stoning. These days there seems to be quite a lot of support and interest.
If the daily headlines regarding the plight of many baby boomers retirement challenges are to be believed, I suspect annuities are going to play an important role as will products like reverse mortgages.
Trouble is, none of these products are cut from a single bolt of cloth and the most needy of such a plan are no doubt the most vulnerable.
Here's a snipet from a recent incident here in MO.

Well times change and so do investor perspective on risk, but yes annuities are less a subject of scorn on the forum than there were pre 2008.

However, to be fair to the forum SPIA have always treated more respectfully than the variable, EIA and the new (old) fixed index annuities.

My #1 rule about annuities has remained unchanged in a decade. Annuities should be bought but not sold.

It is entirely plausible to imagine a retiree thinking I have a decent amount of saving but I am worried of running out of money and future inflation. A SPIA with an COLA provision may very well solve the retiree's need.

It is inconceivable to me that an average American is think gee I want a financial product that is tied to 80% of the return of the S&P 500 unless of the S&P goes up more than 10% in which case I am limited to 8% gain, oh and exclude dividends for the calculations. This is why EIA are almost always sold not bought.

 

[JPatrick]

Universal life insurance guaranteed interest rates are meaningless because of the cost of insurance charges. You could give people 10% guaranteed interest, but if your cost of insurance was extremely high, it wouldn't make a difference. Even a policy with a guaranteed minimum of 4.75% from the 1980's will probably crash and leave you with $0 cash vale and $0 insurance at some point in the future. The COI charges on those older policies have mostly been raised and interest rates fell, causing them to crash. Read your policy statement and ask the company for the following information:

1. How long your policy is guaranteed if you keep paying premiums
2. How long it's currently projected to last if you keep paying premiums
3. How long it's guaranteed to last if you stop paying premiums
4. How long it's currently projected to last if you stop paying premiums

Over 25 years and my regular monthly payment still covers the insurance and deposits a small amount into the savings feature. Cost of insurance has been far below the projection and the savings accumulation has been far greater than projected. I think that's called -win - win. My cost of insurance today is well below what a term policy would cost.
Crash and burn? Sure, someday, but I don't think I'll live that long and I would not let it fall that far as I am pretty well self insured at the moment. When that crash and burn day is spotted on the horizon, I definately will not need an agent to tell me about it, nor to tell me how to spend the very nice accumulated cash value.
I have not looked at a universal life policy in a long while, so I'm not pretending to endorse them as I have heard they ain't nothing like the old ones.

 

[Skye]

Can this be?

A friend of mine got into a Fixed Index Annuity last year. He suggested I do the same, as I would like to be able to count on taking out $800 to $1200, a month in about 10 to 15 years time. He said he gets 8% guaranteed interest yearly and they gave him a bonus to sign up. I said, No way....so he showed me his statement...and there it was! Everything he said.....and he gets another 8% this year. Now I am thinking I should do the same thing. Have any of you heard of a Fixed Index Annuity?

 

[obgyn65]

Hello Skye - can I ask how old is your friend ? When you enter your data here Immediate Annuities - Instant Annuity Quote Calculator., it seems you can get 8% from around 70-72 years old...

Have any of you heard of a Fixed Index Annuity?

 

[Nords]

Let's tie these two threads together:
http://www.early-retirement.org/for...irement-live-long-and-dont-prosper-54412.html

Now I am thinking I should do the same thing. Have any of you heard of a Fixed Index Annuity?

Well, if you search for the keywords "fixed indexed annuity" or "FIA" then you'll find these threads:
http://www.early-retirement.org/forums/f26/fixed-indexed-annuity-53954.html
http://www.early-retirement.org/forums/f28/fia-looks-like-just-what-i-need-53618.html

 

[Skye]

Ya......He is 62.

 

[REWahoo]

Have any of you heard of a Fixed Index Annuity?

Here are a couple of Scott Burns articles you might find interesting:

What's in a word?
Equity-Indexed Annuities = Fixed Index Annuities

...and here's one more:
Real Money vs. Not-Real Money

 

[Independent]

Like many other people on this board, I buy a little SPIA every month. I'm over age 62 and I haven't started Social Security. Every month that I spend money out of savings instead of starting SS I'm adding a little to my SS annuity.

I don't know if my children will think this was a good idea after I'm dead. If I die soon, they'll wish I had started SS earlier. But every time I've compared prices I've noticed that SS is a better buy than a private SPIA (assuming they both pay out as planned).

The article in the OP mentions SS in one sentence nearly at the bottom. To me, someone providing good retirement financial advice would say more about the SS option and less about private annuities.