variable annuities, positive view (is it correct?)
Allan-
There's a lot of info on this forum regarding annuities. Here's a link to start:
http://www.early-retirement.org/forums/f28/immediate-annuities-65576.html
You can find more by searching "annuities" in the forum search window.
My personal answers to your questions are:
A. See above plus go to
Immediate Annuities - Income Annuity Quote Calculator - ImmediateAnnuities.com for comparative info.
B. based on recent threads I've read, I'd go to only A+ large companies for an annuity but, I don't think variable annuities are a good deal. The fees are very high and the rate of guaranteed return is low.
C. I recently priced a variable annuity just for comparison purposes, and the annual ROI based on guaranteed return was only 2.25%.
D. I would not buy a variable annuity. But, I would consider an immediate fixed annuity later in life (I'm not yet 60).
E. Beware of annuity salesmen. Do lots of homework before any purchase. This forum is a great place to start educating yourself. You'll find different views here and lots of good data to inform your own choice.
Thanks all for your responses. The responses seem uniformly negative re VAs. But I am actually surprised (am I totally naive?!). Here is why. I can get (did just buy) a VA with a GLB rider which a) doubles my income base in 10 years (ie., rolls up annually at 10% simple) and b) then pays out for life at 5.25%. (It also has a death benefit in case things go south so my sons "make out"), Further it is a joint annuity--if I die it keeps on paying out at 5.25% til my wife passes (and vice versa). And all this is inclusive of the approx 1.3% GLB rider and 1.4% mortality insurance component, which are transparent to the 5.25% payout for life.
Now what strikes me VERY positive about this is
a) your money doubles guaranteed in the next 10 years (where else can you get such an investment return?!, especially in the presence of a market at an all time high, so likely to experience a correction (and rebound?) withing next 10 years
b) compared to the "4%" safe WR rule, you (I) can pull out 5.25% for life safely --that's a huge increase in annual WR, and
c) you get longevity insurance-- if I and/or my wife live very long, this money keeps coming in; with probability 25% that 1 in a couple live past 95 that's pretty valuable. Further, with likely medical advances in the next decades that scenario could well extend the impact if longevity insurance even further. (if med community just gets a leverage into tumor control watch longevity jump another decade, likely (or at least I hope so) in our life time
In summary, I see the costs of the VA worth the benefits (a)-(c) provided above. I do not see the 2.25% return Huston55 mentions in his item (c) response above--I can't compute the return, but I see the doubling of income base and the a 5.25% withdrawal, with capital account value base protected as a death benefit in the scenario of early death. I wish I could compute an ROI, but I don't see/know how. I just "sense" the value. The doubling and the forever 5.25% lifetime draw down just seem way more than a 2.25% ROI.
Further, this product I am referring to is an equity product, the VA annuity is place in equities not interest bearing bonds, so seems not subject to the ravages of low interest rate environment plaguing IA now, or VA based on bond fund base.
Am I missing something here? Am I being naive?! The post response so far seem negative towards VAs. Your thoughts appreciated.
-Allan (age 60)