Annuities Advice?

Joe Rogers

Joe Rogers

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Eastern seaboard
Has anyone bought an annuity with part of their retirement savings? How did you know if it was a good deal or not? Thanks! Joe
 

Thanks for the quick reply Don. That's my gut feeling, but I figure someone must have a good reason for buying an annuity at or just prior to retirement age.
 

Annuities are a good buy for someone who fears the stock/bond markets. They will usually pay between 3 to 4% on the investment....which is FAR better than money sitting in the bank. However, if a person is willing to take a bit of risk with the markets, a 6%, 7%, and even better, return is quite possible. The insurance companies make billions on the annuities, by investing that money, so an individual might as well do some research, and make their own investments. The markets are always going up and down, but if a person looks for "long term", the odds are pretty good.
 
i would never buy any annuity other than an immediate annuity ..... anyother can be so complex to figure out odds are you will not get what you think you are getting .

index linked and variable annuities can be very difficult to understand
 
Don M. said:
Annuities are a good buy for someone who fears the stock/bond markets. They will usually pay between 3 to 4% on the investment....which is FAR better than money sitting in the bank. However, if a person is willing to take a bit of risk with the markets, a 6%, 7%, and even better, return is quite possible. The insurance companies make billions on the annuities, by investing that money, so an individual might as well do some research, and make their own investments. The markets are always going up and down, but if a person looks for "long term", the odds are pretty good.
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insurers have something to invest in that greatly beefs up their returns you can never have ... they invest in dead bodies . those who die help pay for those who live when you deal with life annuities and mortality credits . you can never do what they do with any kind of certainty.

imagine 30 of us buying 30 year bonds at 3% ...well all we get is 3% ... but if every year one of us died and the deal is their bond money goes in to the pot for the rest , you can see by the 30th year that 3% bond returned an awful lot of money for that last man standing .

while safely we can draw about 4% initially from the cash and bond portion of our portfolio's immediate annuities pay out almost 50% more then that because of mortality credits . you could take 6-1/2% from a portfolio with at least 40-50% equities but that assumes no worse outcomes hitting then average ones . a safe withdrawal rate is based on the worst outcomes to date .

but remember that cash flow from the annuity includes your principal ... it can take 17 years to get your own money back that you gave them before you see your first penny of actual return ... so never confuse cash flow rates with returns on investments .

you give them 100k and get 6k a year , you see zero return for almost 17 years . so you can never say what your return is until you are dead .
 
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Liberty said:
Well, I've got friends that have cashed them in and others that like having them. Whether its the stock market, mutual funds or annuities, what they care about is their yearly extra bucks received, period.
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then they are likely uneducated on the subject .... bring them to this forum and i will educate them on just what they own . the only ones that offer a fair deal are immediate annuities and they should be utilized as a piece of the bond budget , not a proxy for using equities ... even an index linked annuity is no proxy for a market investment . it is like a money market on steroids in up years .

immediate annuities have a place but you need to understand how to best use them ..
 
mathjak107 said:
then they are likely uneducated on the subject .... bring them to this forum and i will educate them on just what they own . the only ones that offer a fair deal are immediate annuities and they should be utilized as a piece of the bond budget , not a proxy for using equities ... even an index linked annuity is no proxy for a market investment . it is like a money market on steroids in up years .

immediate annuities have a place but you need to understand how to best use them ..
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All they would say is "hey, I'm getting so much interest on my money and have been for many years, so who cares?"
 
i would bet anything most who veer from simple immediate annuities have no idea how they work nor what is actually their money vs the phantom account that is used for annuitizing ....all these annuities that offer guaranteed amounts vs market or bond returns all work the same ...

they can promise you anything since the account with the guarantees is an account you can't access directly
 
Liberty said:
All they would say is "hey, I'm getting so much interest on my money and have been for many years, so who cares?"
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exactly , only they are not getting interest .... interest is on top of your principal .... in the typical annuity you hand them an amount of money and the first 16-17 years they hand you back your own money ... you get no "interest " or return until you first get back what you handed them . that starts 16-17 years later ... it is less then a fraction of a point by then .
 
here is a perfect example of a typical annuity with guarantees of whatever the index returns or a minimum of 5.50% ..keep in mind this rate was when interest on cd's was 1% or less .

it sounds great right ? what could be better then getting the higher of what the index does or 5.50% growth right ?

so it works like this ..

the money linked to the index gets no dividends ... dividends are never part of the deal and they alone count for 20-33% of all of the markets return ..
then there are 2-3% in fees and commissions on that money . once you annuitize every dollar you take out gets subtracted too decreasing what is working for you .

odds of the index doing better then the guaranteed growth is slim ... especially because the guaranteed growth includes all expenses in that guarantee ...... so now lets look under the hood and see what you think you are getting vs really are getting .

you think you are getting 5.50% a year ... you are ...only that money goes in a phantom account ... it is never yours to touch , take or pass to heirs .

so in this prudential index linked annuity we give them 100k at age 55.

for every year we delay annuitizing we get 5.50% growth . at at 56 we have 105,500 and if you annuitized you would get a 4% draw rate off that .

now here is the gotcha ... for every year you delay you get another 5.50% growth , but they control how much of that you actually can ever get at
they give you another 1/10% in draw for every year you delay . so they are giving you 5.50% but allowing you to only take 1/10% of it more.

so at age 65 you have 180,209,00 and made it to a 5% draw .

it takes until age 76 to first get back your 100k ..that is 21 years after you gave them the 100k . you get an income of 8,125.00 on their dime finally ...that is a return on your money of .69% 21 years later ..up to that point they are just giving you back your own money you gave them 21 years earlier .

at age 85 your at 3.97% that is 31 years later .

you can see you never really see the 5.50% . very few understand the stuff they buy .. guaranteed you ask them , they think they are getting 5.50% a year in interest ....

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mathjak107 said:
exactly , only they are not getting interest .... interest is on top of your principal .... in the typical annuity you hand them an amount of money and the first 16-17 years they hand you back your own money ... you get no "interest " or return until you first get back what you handed them . that starts 16-17 years later ... it is less then a fraction of a point by then .
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Yep but everyone is entitled to their own lifestyle, and these folks think of the interest like a "pension". Hey, a pension stops when you die, normally. Got another friend that says she has a "good guy at Merrill Lynch that gives her 8-1/2% on bonds." Whoa...sounds like junk bonds to me, but when I ask her about it, she said "oh, he knows I'm living off the interest so he's taking good care of me"...yeah, that and 5 bucks might get you a cup of coffee at Starbucks.
 
at the end of the day it is all about total return ... income can be generated off portfolio's forever too but you get to keep the principal .

a 4% safe withdrawal rate with a 60/40 portfolio has ended after 30 years 90% of all 119 30 year cycles with more than you even started with ... they have ended with 2x what you started with 67% of the time ... that generates quite a bit more in income then 4% .... actually taking raises along the has been the bigger problem or you can leave to much unspent and enjoyed ..... but like i say , splitting the bond budget with an immediate annuity can produce very good results when coupled with the equities in a portfolio .... but i would never suggest an annuity as a stand alone retirement plan . nor would i ever suggest any of these variable or index linked annuities as a proxy for your own equity investing .

as long as they remain as part of the bond budget i have no complaints about immediate annuities being used . they are like buying a cd in simplicity ...if you like the cash flow , that is the whole deal .
 
I agree with what has been said about annuities and decided that they were not the best choice for me.

I do think that they can be a sensible choice for a person that has lived paycheck to paycheck and is now faced with the choice of taking a retirement lump sum or an annuity. The annuity will keep a roof over your head and groceries on the table through good times and bad. It will also protect you from yourself, bad investor behavior, temptation, etc...

When it comes to retirement we won't get a do-over so we need to be honest with ourselves and decide what is best for our own particular situation.
 
that assumption about annuities may be the same bad assumption made about reverse mortgages ... the annuities don't match the unexpected and emergency spending in ones life that go over budget as well as your personal cost of living increases .

someone on limited means may leave themselves all to short with a no to low growth annuity .. annuities can be part of a financial plan but by themselves leave much to be desired and carry a high risk in not matching ones increases in expenses.

that money can go much farther by just using a balanced portfolio . there is way to much given up in potential income by trying to use insurance instead of investments ... in this case it is not like someone using them in conjunction with growth vehicles .

my opinion is if someone is that gun shy then there are enough low cost ways to have a 3rd party handle things for you putting a wedge between you , your money and poor behavior ....the less you have the more important it becomes to utilize that money efficiently .

that would mean not tossing it in to an insurance product with no means for growth to keep up . like i said , the annuity should only replace a piece of what you would typically allocate to cash and bonds , it should not be the plan without some growth vehicles unless you are that wealthy you don't need any growth vehicles because you have so much accumulated .
 
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mathjak107 said:
that assumption about annuities may be the same bad assumption made about reverse mortgages ... the annuities don't match the unexpected and emergency spending in ones life that go over budget as well as your personal cost of living increases .

someone on limited means may leave themselves all to short with a no to low growth annuity .. annuities can be part of a financial plan but by themselves leave much to be desired and carry a high risk in not matching ones increases in expenses.

that money can go much farther by just using a balanced portfolio . there is way to much given up in potential income by trying to use insurance instead of investments ... in this case it is not like someone using them in conjunction with growth vehicles .

my opinion is if someone is that gun shy then there are enough low cost ways to have a 3rd party handle things for you putting a wedge between you , your money and poor behavior ....the less you have the more important it becomes to utilize that money efficiently .

that would mean not tossing it in to an insurance product with no means for growth to keep up . like i said , the annuity should only replace a piece of what you would typically allocate to cash and bonds , it should not be the plan without some growth vehicles unless you are that wealthy you don't need any growth vehicles because you have so much accumulated .
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Have got another friend that invested her money with a money manager...in fact several money managers over the years and has lost money big time. Just because you use a money manager and take his or her advice doesn't guarantee you from losing assets. She finally pulled her money out in frustration. Told me she'd lost 200 grand. Now that's a lot of groceries to make up.
 
Liberty said:
Have got another friend that invested her money with a money manager...in fact several money managers over the years and has lost money big time. Just because you use a money manager and take his or her advice doesn't guarantee you from losing assets. She finally pulled her money out in frustration. Told me she'd lost 200 grand. Now that's a lot of groceries to make up.
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there is more to that story i assure you .. markets are up 300% since 2008 just about any stock fund is up big time . . a simple 50/50 mix had to do just fine ... i will bet she forced the money manager to liquidate their positions in a down draft

if the story does not make sense it is usually because a chunk of it is missing .. in fact to date no one ever lost a penny in a 50/50 mix assuming broad based stock funds in any 10 or 20 year period , ever.

only way you could have lost money is using long term investments to meet short term money needs , bad investor behavior , or speculating in individual stocks ... none of which a money manager would likely have done so there is more to that story
 
Annuities apply if you want super security and a greater interest rate than banks CDs and savings pay. I own one that is a very small portion of my total portfolio. I rolled my poor yielding Merrill Lynch IRA in to a Voya annuity many years ago. I leave the money there and take the RMD annually only because I have to according to the contract. Be cautious before you move because you cannot change your mind once you commit without a very steep penalty. Most important above all do what YOU and you alone are comfortable with. Investing should never be a reason to lay wake nights worrying about your money.
 
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mathjak107 said:
there is more to that story i assure you .. markets are up 300% since 2008 just about any stock fund is up big time . . a simple 50/50 mix had to do just fine ... i will bet she forced the money manager to liquidate their positions in a down draft

if the story does not make sense it is usually because a chunk of it is missing .. in fact to date no one ever lost a penny in a 50/50 mix assuming broad based stock funds in any 10 or 20 year period , ever.

only way you could have lost money is using long term investments to meet short term money needs , bad investor behavior , or speculating in individual stocks ... none of which a money manager would likely have done so there is more to that story
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Sorry to differ with you, but there's been more than one "sticky fingers" money manager. Our business partner's kid lost a chunk of change when a financial manager got greedy. They're still looking for him the last I heard. Remember Bernie Madoff. Just because the markets are up doesn't always mean your money is way up either. It is what it is sometimes. I happen to know my other friend didn't "tell her advisor" to do this or that...quite the opposite, she didn't know enough about it to do it and it wasn't just one money manager, there were like 3 over the years.
She'd almost doubled a house sale of just 4 years and had put that money into the pile, too. One fund would be great and do well, another would tank, etc. When the market went down, like last year, it was a wash out. Got a friend in Canada that should be suing her money guy - he absolutely was illegal with her retirement investment - .

It is what it is...pay your money and take your chances. There's risk with both money and money managers.
 
Liberty said:
Sorry to differ with you, but there's been more than one "sticky fingers" money manager. Our business partner's kid lost a chunk of change when a financial manager got greedy. They're still looking for him the last I heard. Remember Bernie Madoff. Just because the markets are up doesn't always mean your money is way up either. It is what it is sometimes. I happen to know my other friend didn't "tell her advisor" to do this or that...quite the opposite, she didn't know enough about it to do it and it wasn't just one money manager, there were like 3 over the years.
She'd almost doubled a house sale of just 4 years and had put that money into the pile, too. One fund would be great and do well, another would tank, etc. When the market went down, like last year, it was a wash out. Got a friend in Canada that should be suing her money guy - he absolutely was illegal with her retirement investment - .

It is what it is...pay your money and take your chances. There's risk with both money and money managers.
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fraud is a whole different issue ..... there are no diversified finds i bet you can find that are down since 2000 or 2008 ... i bet none ..... they are all up ... unless they had a poor manager speculating in individual stocks it can't be. in fact all they needed was an index fund and they would have done well .... mark my words there is more to this story
 
mathjak107 said:
fraud is a whole different issue ..... there are no diversified finds i bet you can find that are down since 2000 or 2008 ... i bet none ..... they are all up ... unless they had a poor manager speculating in individual stocks it can't be. in fact all they needed was an index fund and they would have done well .... mark my words there is more to this story
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Then there has to be more to "many stories"...lol. Where there are people there will always be honesty, greed and mismanagement.
One of the most boring things is to go out to dinner with folks and have them talk about their "investments"...one big yawn. Or pump you about yours. According to most, they are doing fantastic and have found that magic method or stock mix or whatever that "everyone that's smart should be doing". That's great, now could we talk about something more interesting...lol. After being in business for so many years, its time to relax and enjoy. Heard it all before, in different variations.

You can't take it with you. Would hope that folks would do well and not get scammed, but would rather talk about "interests", rather than "interest"...lol.
 
mathjak107 said:
all you need is a simple index fund and yawn , call it a day ..investing should be boring if you are doing it right .
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Yep, or whatever you want to do. Just think a lot of folks don't have many "interests". Guess we've got too many. One of our favorite couples never talks about it. He's like 89 and works full time as a general consul for a large H Town law firm and has for 65 years! He never talks about the latest hot IPO. Like now its "Beyond Meat" or whatever it is...lol. Do understand that people enjoy their stocks, though!
 

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