Basic fixed annuity question

[FloridaJim57]

In plain, simple English (read that as for someone who believed in Santa Clause till he was 15) can someone explain about fixed term annuities. In other words, when say the five (or ten or whatever) period is over does the person get their original amount back or is that not returned? In other words, once the monthly payments end, do you get your original investment back?

 

[Jerry1]

I wouldn’t call what you described as a fixed annuity, but there are certainly annuities where you lock up a sum of money, the annuity pays (or reinvests) income and then you get your principle back at term end. Look up a multi-year guaranteed annuity (MYGA). There’s typically pretty hefty penalties for early withdrawal and there are conditions regarding how the interest is paid out or reinvested. For example, on mine, I can take my interest every year or reinvest it. If I needed the income, I’d take the interest but for now I’m reinvesting it. It compounds just like a CD. But, it’s a somewhat complicated instrument/contract so do your homework.

 

[SevenUp]

In other words, once the monthly payments end, do you get your original investment back?

For most annuities the answer is "no". E.g., if you look at an annuity that says it will pay you 7% vs. a CD that will pay you 1%, you are looking at apples v. oranges: the CD gives your original investment back but the annuity does not.

 

[pb4uski]

In plain, simple English (read that as for someone who believed in Santa Clause till he was 15) can someone explain about fixed term annuities. In other words, when say the five (or ten or whatever) period is over does the person get their original amount back or is that not returned? In other words, once the monthly payments end, do you get your original investment back?

No.

I think that you are talking about a period certain payout annuity... in other words, you put in $100,000 and then receive $961/month for 10 years. Then it is done. You are just buying a stream of cash flows/benefit payments.

BTW, the IRR in the above ($961 from immediateannuities.com) is 2.94%

There is another type of annuity, a MYGA (Multiple Year Guaranteed Annuity) that has many similarities to a bank CD and pays a stated rate of interest for a stated number of years. They often have very onerous surrender penalties if you redeem early, but most also allow you to withdraw up to 10% near each policy anniversary without penalty. With these you would not get any regular payments but would get your money back with interest.

 

[ncbill]

In plain, simple English (read that as for someone who believed in Santa Clause till he was 15) can someone explain about fixed term annuities. In other words, when say the five (or ten or whatever) period is over does the person get their original amount back or is that not returned? In other words, once the monthly payments end, do you get your original investment back?

No, but there is a "life with cash refund" option.

That doesn't mean you get the principal back at the end, but instead:

"You receive this income for your lifetime.

If you die before receiving an amount equal to the premium, your beneficiaries will receive a lump sum equal to the remainder of the premium which has not yet been paid to you."

 

[Richard4444]

In plain, simple English (read that as for someone who believed in Santa Clause till he was 15) can someone explain about fixed term annuities. In other words, when say the five (or ten or whatever) period is over does the person get their original amount back or is that not returned? In other words, once the monthly payments end, do you get your original investment back?

FloridaJim: IF you go to some websites that sell them, such as immediateannuities.com once you enter in hypothetical numbers ($ amount, your age, etc) there will be options that populate and it is well explained. At that point you are not obligated, it is just educational.

(Florida) Rich

 

[Dtail]

In plain, simple English (read that as for someone who believed in Santa Clause till he was 15) can someone explain about fixed term annuities. In other words, when say the five (or ten or whatever) period is over does the person get their original amount back or is that not returned? In other words, once the monthly payments end, do you get your original investment back?

An example of MYGA's is below.

https://www.blueprintincome.com/fix...Bh1TuwgFEAAYAiAAEgLrpfD_BwE&amBestRating=A%2B

 

[pb4uski]

No, but there is a "life with cash refund" option.

That doesn't mean you get the principal back at the end, but instead:

"You receive this income for your lifetime.

If you die before receiving an amount equal to the premium, your beneficiaries will receive a lump sum equal to the remainder of the premium which has not yet been paid to you."

^^^ This is for some life-contingent payout annuities that include this feature. Typically, the differences are not terribly significant. For example, for a 65yo male in FL paying $100,000 in premium... monthly benefit and total benefits if the annuitant live to 83 (averge life expectancy for 65 yo man):

Monthly Live to 83
For life.................................. $542..... $117,072
For life with 10 years certain.... $529..... $114,264
For life with cash refund.......... $501..... $109,216

 

[cyber888]

Question for you guys. So, I'm retiring next year, and I ask Tiaacref about annuities. I told them I could spare $157,000 and I want to start a monthly income in 3.5 years when I turn 62 yrs old.

He said my $157,000 will get me & DW (a joint annuity) for $1,240/month Lifetime annuity with a 10 year guarantee to a beneficiary, and $1,215/month Lifetime annuity with a 20 year guarantee to a beneficiary. Is this good

 

[SevenUp]

Question for you guys. So, I'm retiring next year, and I ask Tiaacref about annuities. I told them I could spare $157,000 and I want to start a monthly income in 3.5 years when I turn 62 yrs old.

He said my $157,000 will get me & DW (a joint annuity) for $1,240/month Lifetime annuity with a 10 year guarantee to a beneficiary, and $1,215/month Lifetime annuity with a 20 year guarantee to a beneficiary. Is this good

That looks fantastically good - so good that one wonders if something is missing...? E.g., compare results from immediateannuities.com.

 

[cyber888]

That looks fantastically good - so good that one wonders if something is missing...? E.g., compare results from immediateannuities.com.

I did look at Immediate annuities to compare .. yes, it looks pretty good. And this is Lifetime, not something that ends in 10 or 20 years.

Someone here also said they did a Tiaa-cref annuity and it is the best he has seen so far.

 

[Jerry1]

Is it somehow through your employer? Or, are you just approaching them cold?

 

[ShokWaveRider]

Has anyone here ever purchased an annuity from a B++ company? MYGAs are currently fetching for 4% for 3 Years. That is not bad. It is the B++ companies that are offering this at this time.

 

[retired1]

I believe at the end of the FA time period (Note the interest is tax-deferred) so you'll have to pay Tax on growth + 10% penalty if under 59.5 Yrs. That's my understanding.

 

[zinger1457]

Has anyone here ever purchased an annuity from a B++ company? MYGAs are currently fetching for 4% for 3 Years. That is not bad. It is the B++ companies that are offering this at this time.

I haven't but MYGA's are protected by your state guaranty association that all insurance companies must belong to, just need to verify how much your state covers, typically it's around $250K. In the very unlikely event that the company goes belly up you should at least get your initial investment back.

 

[Dtail]

I haven't but MYGA's are protected by your state guaranty association that all insurance companies must belong to, just need to verify how much your state covers, typically it's around $250K. In the very unlikely event that the company goes belly up you should at least get your initial investment back.

Yes SWR, you know you have your FLA protection.

 

[jazz4cash]

Has anyone here ever purchased an annuity from a B++ company? MYGAs are currently fetching for 4% for 3 Years. That is not bad. It is the B++ companies that are offering this at this time.

I wouldn’t hesitate to do so, but I would limit the amount and/or spread it among several companies if possible. I was all set to buy from a B+ company when I stumbled onto an A rated provider paying similar interest. They are mostly obscure companies I’ve never heard of anyway. A.M. Best is the insurer ratings expert but how do I know how accurate the ratings are? It’s different if you are buying from John Hancock, Prudential or another Mega company. They have lots of levers to push to protect their reputation.