I need help!! I do not know a lot about annuities.

Blessed said:
I do not know a lot about annuities. My financial advisor advised this might be a good idea for some of my savings. I was fine with moving money in to a CD. I have had those in the past.

This was a conversation over the phone. I get the paperwork. Reading it over, I see it is not FDIC insured. I see that it is possible that I might only gain .25%, not 5% like I understood. I also did not realize there would be fees involved. They did not disclose all this these things. I also read on the internet that the advisor gets a commission for selling this product.

To say the least, I am concerned about the whole thing. This does not sound like a good move to me. Can some of you help me understand? I am alone, a widow, I have always made the financial decisions for our family since I married but this one is scary. Please provide any input you can give me as I am at a loss what to do.
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don’t ever buy any annuity product except for what is called an spia or single premium immediate annuity ..,it is rare advisors sell them since there is little for them in it .

they give you a draw rate , if you like the rate then that is your deal like buying a cd.

but remember these are draw rates , not returns …

a 65 year old male can see 607 a month and a female 581 a month for a 100k .

that is 7284 a year for a male and 6972 a year for a female over at immediateannuities.com.

so it can take 14 years before you see a penny of their money at that rate so your return is zero until that point.

splitting the bond budged in a diversified portfolio can be a good idea .. i would never use these though as a stand alone with no investing
 

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Chet said:
If your "financial advisor" works for your bank, ask him why he wants you to move your money if they already have it to begin with. I was in that situation and asked that question. Somebody there makes money on it and you take the risk.
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Some salespeople are paid to churn your money often but they forget to tell you that.
 
the problem is anything other than a simple spia type annuity has twists and turns that few are able to interpret….

many offer links to some index and then offer guaranteed minimum returns …

they sound fabulous .

our bank tried to sell me the typical deal that has these high guarantees..

it was a variable annuity consisting of choices in investments where you could put your money.

they guaranteed no matter what your portfolio did they would guarantee you a minimum of 10% for 10 years.

sounds great so far right?

it started out with them promising me a minimum of 10% a year return for 10 years if the annuity was on myself or 5% a year min if it extended to marilyn too.. if my variable investments were worth less they would increase me to either a 5% minimum return or 10% min depending which i took. . if i died my wife gets to continue the plan and she gets the 5% minimum option.

now for the gotchas.


i asked if i could take that bonus money out at the end of the 10 years and of course no you cant. you can take your own once the surrender fee ends but not the money they added to boost your return.

that 10% a year guarantee are only "bonus bucks " ill call it good towards an annuity conversion into a lifetime income stream if at retirement age instead of taking your money and going you decide to stay on, give them that money and annuitize that money into an income stream and you get to keep that extra dough..

however heres the catch. you pay expenses on your average yearly account value which includes those phantom bucks.. those bonus bucks after 10 years have your expenses running double because they are based on that phantom value.

if you started with 100k had 3600.00 a year in expenses before the fund expenses those bonus bucks after 10 years have you paying 7200.00 a year plus fund expenses .

there were options everywhere you needed to add to the basic model if you were going to get these guarantees and spousal protection. each option added to the plan increased expenses.

as best as i could tell without an mba is here are the expenses,and keep in mind historically the return on a 50/50 mix is about 7% when not in an annuity.

the expenses below are based on the total account value with the phantom bucks being included they give you.

mortality and expense risk charge 1.10%...

administrative fee .20%

combination enhanced death benefit .45%

beneficiary protector .35%

10% lifetime income option charge 1.2%

10% spousal continuation charge .30%

total 3.60% but we havent included the fund expense fees so tack on another .45 to 1.94% depending what funds you picked..

thats 4-5% in expenses on around a 7% return.


thats a horrible deal when all is said and done.

when someone says they are getting an 8 % return, 10% return or even a draw down thats so much higher then common sense sense says makes sense my first question is whats in your prospectus your not following.
 

this annuity sounds fabulous too .

it is the prudential bond index deferred annuity with a guaranteed 5.50% growth rate .this was offered when interest rates were less than 1% in cds and money markets .

so lets look under the hood .

this annuity is linked to a bond index .
it will give you the higher of what the index does or a guaranteed 5.50% .
sounds sweet .

so we see if we give them 100k at age 55 and let it grow for 10 years with a 2.50% expense , there is no way the bond index will beat the guarantee of 5.50% which includes expenses .
so basically the index is for show .
i-xGB37fQ-X3.jpg


we see below if we give them 100k at age 55 and defer to 65 to start , we have the 100k compounding to 180,209 .
you really did get 5.50% . but now watch how that goes away .
you cant take that 180k nor can heirs get it . it sits in a virtual account not your account and it is used only as a base for your annuity draw .
so you gave them 100k at age 55 , you start drawing money at 65 .
it takes until age 76 to get your own money back out . that is 20 years at zero return .
you see the first penny of their money at 77 . your return for 21 years is now .44% .
even if you lived to 90 you saw less than 4%
so because they control how much of the virtual account you actually see they can guaranttee you anything and it does not matter .
if you notice while you are deferring and growing out of the 5.50% each year you get they are only allowing you to see 1/10% more of it

i-npq9z3W-X3.jpg


by the way , what your heirs get is your actual account balance less all the money drawn out over the years , less the 2.50% expense each year .
after a number of years that is likely zero and you are running only on the virtual account balance no one can touch
 
Check annuity ads from the 70’s. They had attention grabbing titles like Joe retired with $500 a month income for the rest of his life. Then there is a picture of Joe fishing on a lake, or eating in a cafe in Paris. How far would $500 a month get Joe by the mid 1980’s?
 
Based upon what you wrote, it sounds as if you do not have a trust worthy person to discuss this with.

Is the place reputable?
Is the professional advisor selling you a good product?
Do you feel that you will be receiving a good sum of monthly payments-that will last you for several years?

If you are not comfortable with the idea, do not follow through with it.
 
never ever go by the literature they show you .

while they can’t lie about what the annuity pays you with any guaranteed re like the one i posted above , the fact is they control what comes out .

i can offer anyonechere a guaranteed 10% growth rate .

but if i restrict how much of it actually you can take then you will never see 10% .

the most you will see if you live long enough is what i want you to get .

you can see above the growth rate of that annuity was 5.50% at a time we were getting zero ….

but you can see despite actually growing at 5.50% if you lived to age 90 the best you could get was 4.55% .
 
Brookswood said:
Shhhhhh…… you’re not supposed to ask that question. ;)

Thanks for the great example of the 5.5% earning annuity. It’s an eye opener.
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your welcome .

yeah it is an eye opener because i saw the presentation for that very product .

they didn’t lie at all , you are guaranteed and get 5.50% growth .

but the secret is you can only access as much of it as they allow and they restrict it
 
z10help said:
I think you should be careful. I can check my contacts in the annuity and let you know. How much you are looking to put in this annuity?
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Not needed, I have decided it is not for me. Thanks for the offer!!
 
I have no financial background, other than a few classes in college, but with a husband in the USNavy, I have always managed our accounts. First I have always kept our investments split between TWO companies - just in case one goes away (remember ENRON?). I do know that annunities are considered an INSURANCE VEHICLE - not an insured savings account - thus do not qualify for FDIC coverage.

At the beginning we had very little to invest but we had life insurance with two companies - both of whom eventually branched out into investments and estate planning. We stayed with both and resisted annunities for a long time.....UNTIL as Retirement got closer and closer, I realized that all these years of saving - I would probably have an anxiety attack each time I had to withdraw funds to live on.

It also took me a while to realize that my expenses in retirement would not be that different to what we were already paying out so I started a list of what we were paying for and what might change as we retired. Thus I began to look at annuities to generate income to cover those expenses. I know - EVERYONE always tells you NOT to buy them but I knew we needed monthly income that we could count on, to supplement Soc. Sec. I also realized that there are hundreds of different kinds of annuities.

We worked with Reps. from both companies and, over time, set up about a half dozen annuities. They have been steadily growing and only one has a limited payout time of 25 years. The rest are for LIFE - whether there is principle left or not. With Disability, Social Security, a pension from his last job and a Beneficiary IRA we have NOT had to tap any of our annuities so far and have been retired for 6 years. We may cash a couple out for a CCRC buy-in (with a 100% refund) in the near future. We have been VERY happy with our annuities and we have NEVER paid for financial advise - except to open accounts they set up for us. I don't mind paying that kind of "fee" - it is THEIR expertise after all that has worked in our favor.

I do have several friends who have not had the same experience so (I believe they just deposited into the first annunity they were offered) - ask alot of questions and make sure you understand the set up. Some have a delayed pay out with ultimately no fees. Some are immediate pay outs. Most of ours have a growth lock - where they lock in as the market rises and do not drop when the market retreats. They are all different. Good luck!
 
index annuities are nothing more then a cd on steroids ..they are in no way a proxy for equities .

both the participation rate is capped and dividends are generally not included so even in the best markets gains are very muted .

the best way for most to utilize annuities are to restrict them to simple immediate annuities and share some of the bond budget with them leaving your equity allocations intact .

one can create their own indexed annuity simply using a cd and stock options if they really wanted but i say forget it .

spias and your own investing work so much better .

i have given instructions on how to create your own index linked fixed income investment here a few times ..even without the expenses an insurer charges you and commissions they are still not a whole lot better then a cd alone .

they cant be since the way it is done is 90% of the money goes in a cd ,and the interest is used to buy stock options.

that is how they guarantee you never lose money ….the cd plus the interest pay to buy a bit of stock option .

90% is in the cd and 10% is in a stock option and they pay no dividends so any gains are very small

in a down market you would get no interest at all as that goes to pay for the option
 
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bobcat said:
I have 4 annuities with Prudential, and am happy with all of them. Two of them are "Guaranteed Lifetime Annuities", which means i can draw from each one of them once a year without any penalty. It is called an "Annual Income Amount", and they will tell you how much it is based on how much you initially put in, and your age. So you can draw that for the rest of your life. Also, if you have the right type, your beneficiary will get the remainder of the initial amount that you put in, minus what you have drawn out.
The other two that I have are not "Guaranteed Lifetime Annuities", so I can draw from them whenever I want, and the balance that is there will be reduced by that much.
As for the rate of return, it is tied to the stock market, so the value of the annuity may go up or down, depending on the market, but if it's a guaranteed lifetime one, you're going to get the same amount every year no matter what. It's just the overall value that changes.
On the guaranteed ones, you will get an anniversary date, and the yearly draw that you do should be after that date to avoid any penalty. You can also set it up to automatically pay out on a certain date (After the anniversary), and you can set it up for a direct deposit to your bank.
As for whether it's better than other investments is a subjective viewpoint. You might get a better return by some other investment, but it may depend on how it does. At least here, I know I can count on a certain amount every year, so I guess that's the trade-off. Peace of mind.
I suppose if you have a good fund manager, and decide on stock / bond portfolio instead of annuities, you will probably do fine over the long haul just as well. Just make sure you choose a reputable company like J.P. Morgan, which is tied to Schwab, and arrange a sit down with the financial advisor to go over your particular situation so it will be tailored to your need.
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we found this to be true.

Currently we have 6 between the 2 of us, "Guaranteed Lifetime Annuities" 2008-2017 (you cannot buy, today, what we bought then). Laddered. You can't buy what we got anymore.
Also killed another 3 of these annuities for other investments. The last one of them, we 1035 exchanged to a 3 yr MYGA @4.65%. I, expect/maybe, to purchase a SPIA from this MYGA in 2026 to yield +9% yield on annuitize value, for life.
Along with SS and pension, the annuities represents ~60% of our Income and will cover our basic expenses as of 2023. The remainder our income comes from a rental. Backstopping are investment trading accounts and cash. The Cash we are laddering into 3-13 month CDs.

The annuities act as a pension or secure paycheck.
The annuities (SS, pension, purchased annuities) allow for more and different investment possibilities. Your FA is correct that "some" annuities could provide more retirement security.
Purchased annuities replaced bond holding (witness Credit collapse of 2008 and current Sept 30, 2023 budget crisis).

Temporarily, think about CD's, laddered, multiple banks. They will function as if you bought a 1 yr, MYGA annuity.

OP, you will need to examine your risk tolerance. Thoroughly understand how the particular annuity works. It's your money and retirement.
 
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Blessed said:
I do not know a lot about annuities. My financial advisor advised this might be a good idea for some of my savings. I was fine with moving money in to a CD. I have had those in the past.

This was a conversation over the phone. I get the paperwork. Reading it over, I see it is not FDIC insured. I see that it is possible that I might only gain .25%, not 5% like I understood. I also did not realize there would be fees involved. They did not disclose all this these things. I also read on the internet that the advisor gets a commission for selling this product.

To say the least, I am concerned about the whole thing. This does not sound like a good move to me. Can some of you help me understand? I am alone, a widow, I have always made the financial decisions for our family since I married but this one is scary. Please provide any input you can give me as I am at a loss what to do.
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Is your financial advisor a fiduciary? If not look for another. What licenses and certifications do they hold? I would not do it. When a financial advisor is a fiduciary, it means they are legally and ethically bound to act in the interest of their clients. They should recommend investments and products based solely on your needs and not what offers them the largest commission. Not disclosing information is a big red flag that you are not dealing with a reputable company.
 
mathjak107 said:
index annuities are nothing more then a cd on steroids ..they are in no way a proxy for equities .

both the participation rate is capped and dividends are generally not included so even in the best markets gains are very muted .

the best way for most to utilize annuities are to restrict them to simple immediate annuities and share some of the bond budget with them leaving your equity allocations intact .

one can create their own indexed annuity simply using a cd and stock options if they really wanted but i say forget it .

spias and your own investing work so much better .

i have given instructions on how to create your own index linked fixed income investment here a few times ..even without the expenses an insurer charges you and commissions they are still not a whole lot better then a cd alone .

they cant be since the way it is done is 90% of the money goes in a cd ,and the interest is used to buy stock options.

that is how they guarantee you never lose money ….the cd plus the interest pay to buy a bit of stock option .

90% is in the cd and 10% is in a stock option and they pay no dividends so any gains are very small

in a down market you would get no interest at all as that goes to pay for the option
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Indexed annuities (2014) are worse than CD's on steroids for yield but better than 2% SPIAs in 2014, age 65, F. We expect to zero out Cash Account value in total 13 yrs (7yrs remaining, at age 83, F); From that point on, it will be the Annuity's cos. money.
We bought because they functioned as a guaranteed future valued, high yielding CD (5%) in an era of 1.5% 3-5yr CD plus the benefit of a high yield payout on Annuity Value of 6.5% at age 70. Current Fixed Indexed annuities are not as generous as in 2014.
Due diligence.
 
leastlongprime said:
Indexed annuities (2014) are worse than CD's on steroids for yield but better than 2% SPIAs in 2014, age 65, F. We expect to zero out Cash Account value in total 13 yrs (7yrs remaining, at age 83, F); From that point on, it will be the Annuity's cos. money.
We bought because they functioned as a guaranteed future valued, high yielding CD (5%) in an era of 1.5% 3-5yr CD plus the benefit of a high yield payout on Annuity Value of 6.5% at age 70. Current Fixed Indexed annuities are not as generous as in 2014.
Due diligence.
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it’s almost a moot point since most will be dead by mid 80’s and with the bulk of spias bought around 65 they have zero return for 15 years …so the climb for return beyond 2% or so extends past most lifetimes
 

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