Set me straight on annuities and why are they so bad

[athena53]

So, if we assume the $84K annually is correct and not a scam, as some of you say, can we discuss the simple math associated with that and go back to the fact that I need to make >6% each year on the $750K in order to make the non-annuity scenario more advantageous. 6% is pretty high I think to bank on.

No one seems to be addressing this simple comment.

I grabbed a recent male mortality table and if you start with a group of 65-year olds, 2% will die during the next year. Annuity recipients tend to be healthier (you don't buy an annuity if you expect a short life span). That death % increases a little every year. So, they can safely give you maybe 2% of your own principal back PLUS 4% from investments, which is pretty tame, and get to 6%. While most advisers recommend a withdrawal rate of 4% or less, insurers can risk paying out more to you than you put in (plus investment returns) because they have other customers who will have shorter than expected life spans. They have diversification that you don't.

 

[Luvtoride]

No way these returns are guaranteed. Typical indexed annuities give you some weird combination of some market index minus dividends, capped at a low gain in any given year. But markets tend to be very jumpy, with large moves in a couple of years and down or no gain in others, so you never get those juicy returns you thought you were promised. Worse, typically the insurance company can change formulas at their pleasure after you make the deal.

This is just another near scam played on the unwary, a high commission piece of crud that will please the salesperson and disappoint you. If you need an SPIA or MYGA, try stantheannuityman.com or immediateannuities.com.

@Gumby, talk about confrontational… “this is just another near scam”! It seems that the OP laid out his point very well,knowing full well that others here would be “wary”.

 

[ShokWaveRider]

Fixed MYGA annuities are as safe as the Insurance company and your state's guarantee fund. Stick with A+ and better and one should be fine.

 

[GenXguy]

Fixed MYGA annuities are as safe as the Insurance company and your state's guarantee fund. Stick with A+ and better and one should be fine.

A- and better should be fine. I'm getting an A rated one myself.

 

[sengsational]

Annuities are confusing and that is part of the allure for companies to write them. This plays into risk aversion. If they were simple and risk free there would be no need for a commissioned sales person to pitch them. You get what you pay for.

I have on off the wall question. Scenario 1 would be if the S&P goes through an exceptionally prolonged down cycle during the drawing years of your annuity. What happens? Scenario 2 would be the opposite and the S&P goes through an exceptionally prolonged bull market cycle and far exceeds the expected appreciation. Do you benefit and to what degree?

Are you protected from a prolonged bear market and also allowed to participate in a prolonged bull market or are you assuming some risk that you would otherwise be taking on if you owned SPY outright?

If you are getting a partial heads-I-win-tails-you-lose benefit here, what is it and is the 1% or whatever you're paying for that privilege worth it?

These comments gave me an idea...they wrote all of the rules into the annuity contract, so it would be a SMOP to give you a calculator to model different scenarios (S&P 500 does this or that in the future, or whatever other things affect the payouts). They could even let you do a side-by-side comparison with a MYGA or a portfolio. But they don't give you a calculator, do they? You have to ask yourself "why not?" Probably because it's a scam, or something near it.

 

[OldShooter]

These comments gave me an idea...they wrote all of the rules into the annuity contract, so it would be a SMOP to give you a calculator to model different scenarios (S&P 500 does this or that in the future, or whatever other things affect the payouts). They could even let you do a side-by-side comparison with a MYGA or a portfolio. But they don't give you a calculator, do they? You have to ask yourself "why not?"

Easy. Because they don't want the mark to understand the product.

 

[Koolau]

As far as annuities go, I'd only buy MYGAs. You CAN annuitize them at a future date if you wish. Otherwise, they are essentially a "CD" offered by an insurance company. You have more restrictions on taking out your money, but that's how they offer higher interest.
All the bells and whistles in the other kinds of annuities all have fees and there is too much complexity to figure them out. I'd stay away from anything but MYGAs - but YMMV.