Thread: Annuities

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  1. #1
    Indiana Bass Club Moderator sc419795's Avatar
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    Annuities

    Working with a new financial advisor. Trying to establish a fixed income going forward in retirement. I am fortunate to have a pension from work and counting on Social Security. The FA is recommending taking a piece of my 401K and getting an annuity. Load a 7 year deferral into the payout, then get a guaranteed amount annually with full survivorship of both me and my wife. Now - for the 7 years, the annual could fluctuate based on the market - but between the worst case model and the past 20 year model, there is only about a $3,000 annual difference.

    Have any of you given thought to an annuity? Interested in other opinions...the good, the bad and the ugly. The wife and I are not risk takers so the thought of an annual amount for life is interesting.

    Thanks, Steve
    Steve
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  2. Stocks/Investments Moderator boneil's Avatar
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    #2
    I don't know much about them, but I do know that they are not for everyone. But I would ask, is your FA or anybody associated, making a commission on getting you to take money out of your 401K to put into an annuity. I think I remember other people talking about commissions. Also always be skeptical about anything with a guaranteed return. I would love to know what is the "worst case model" I am doubtful, of any investment still giving a return in worst case scenarios. In fact, if a salesman told me that I would still collect, and there would only be a small difference between "worst case" and the raging bull market we have had, I might laugh in his face. Doesn't mean the FA isn't right. I could be wrong. Worst case scenarios should include banks and insurers going bust.

    Remember, There is always risk.
    Thanos was the hero

  3. #3
    What type of annuity is it? Fixed or variable? Also boneil ia correct they do pay the advisor a big commission. If you want you can PM the information on the annuity as far as company and name of product and I can do some research on it for you.

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    #4
    It sounds like it is a variable annuity. We put my wife’s 401K in a fixed six year annuity when she retired in 2009. It is still in there, but it is no longer covering her RMD’s each year, so it is time to move it into a bond index fund, or something else.

    I would not invest in the annuity you are describing. I’m sure that your principal is not guaranteed.

  5. Indiana Bass Club Moderator sc419795's Avatar
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    #5
    Bluejay - IM'd you.

    Guys - thanks for the replies. A couple of the features here:

    Ability to grow Income Base by 6% of the Enhancement Base in years no withdrawals are taken


    Ability to grow Income Base with Annual Market Step-ups
    Guaranteed Lifetime Income






    There are fees with this. Looks like 1.81%. As I understand it, we would deposit the amount and not touch it for 7 years (I can withdraw earlier than 7 years, however that is the current analysis). There is a 6% interest on the balance over that time regardless of the market. Should the market grow more than that, I get the better deal. Once I start to draw, should the market grow the balance, I would get the benefit of the higher amount as well. On death benefits, if there is any principal left, that would go to my survivors . As I understand it, the company makes out if both my wife and I die before the value runs out. We make out if either one of us lives longer than the value runs out.

    The thought of a 3rd fixed income is appealing for me - but there has to be a catch that I am not getting yet.

    Thanks, Steve
    Steve
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    2006 Yamaha F150 TXR s/n 63P L 1041829

  6. Stocks/Investments Moderator boneil's Avatar
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    #6
    So what exactly happens to ones money when you put it into an annuity. What earns the return?
    Thanos was the hero

  7. Indiana Bass Club Moderator sc419795's Avatar
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    #7
    Quote Originally Posted by boneil View Post
    So what exactly happens to ones money when you put it into an annuity. What earns the return?
    The money is invested in a variety of stocks and bonds. So while you are drawing a monthly/annual amount, it is also being invested which helps offsets the draw.
    Steve
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    2006 Yamaha F150 TXR s/n 63P L 1041829

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    #8
    You are getting a variable annuity with a living benefit rider attached. Your account value will fluctuate based on market performance. The fees with this type of contract are very high. You will be paying anywhere from 3-4% annually in fees. What company are they proposing for the annuity? You will pay for the following:

    M&E expenses
    Admin expenses
    Rider expenses
    Subaccount fees

    If you are as conservative as you say you are then I would look at a fixed indexed annuity over a variable. They do not have any fees except rider fees if you choose one. They are also guaranteed to not to lose your account value. For this you give up some up-side performance. You can expect bond type returns. I have been in the business for 18 years. Feel free to ask me any questions.
    Last edited by janky; 07-03-2018 at 09:49 AM.

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    #9
    Quote Originally Posted by sc419795 View Post
    The money is invested in a variety of stocks and bonds. So while you are drawing a monthly/annual amount, it is also being invested which helps offsets the draw.
    Yes, but you are also paying huge fees. So, when you withdraw 5% for income you are really taking 8.5% with fees (5% income + 3.5% in annual fees). Now, in that 1 year when you market drops 10% you just lost 18.5% that year. That is hard to get back.

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    #10
    And god forbid you cancel it prior to contract limits. More FEES. I found out th ehard way.....had to be in for 10 years. Once I realize what was SOLD to me, I transferred it to another custodian and another product and paid ANOTHER 10% FEE.

    Please know what you are paying and ALL fees associated with the product prior to signing.

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    #11
    As mentioned, not for everyone. I have some and I consider them a lower return / less risk than my 401K that is in the market. I would wait until the interest rates go up some more as that is really impacts what the guaranteed payouts will be. The Time Value Of Money is what you need to look at.

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    #12
    Quote Originally Posted by MengRanger View Post
    I would wait until the interest rates go up some more as that is really impacts what the guaranteed payouts will be.
    Rates don't really have any impact on the payout of the annuity he is considering.

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    #13
    It has been a while since this same investment advice was pitched to us. At the time we thought that your money is invested in stocks and bonds that vary with the market. Your monthly income will stay the same, but your principle can lose value. Should you die your beneficiary will receive the current value. It was 2008 and we were looking for safety on a rollover, so we opted for a five year fixed annuity. It started out at 5% and we were told that it would stay at that rate throughout the five years. We later found in the fine print that it decreased each year and now it is at 3%. We are trying to figure out at this time where a safe home for it would be that returns more than 3%. Be very careful with any annuity.

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    #14
    If you have a financial advisor that suggests an annuity, RUN! He's a salesman and not to be trusted. Annuity commissions are often paid on front end and there are huge penalties for early termination.

    If you choose to use a FA, only go to a fee based one--that is completely independent from any financial institution.

    I monitor the Early Retirement forum, and those on there are relatively well off. Very few use financial advisors or admit to investing in annuities. Good advice is just so hard to find.

    I too have a defined pension and social security. I periodically study all of Fidelity Investment's different accounts and maintain a diversified stock and bond portfolio that returns far more than annuities. I make changes from time to time.

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    #15
    Speaking in absolutes is never a good thing.
    Last edited by janky; 07-04-2018 at 03:31 PM.

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    #16
    Quote Originally Posted by Bamaman View Post
    If you have a financial advisor that suggests an annuity, RUN! He's a salesman and not to be trusted. Annuity commissions are often paid on front end and there are huge penalties for early termination.

    If you choose to use a FA, only go to a fee based one--that is completely independent from any financial institution.

    I monitor the Early Retirement forum, and those on there are relatively well off. Very few use financial advisors or admit to investing in annuities. Good advice is just so hard to find.

    I too have a defined pension and social security. I periodically study all of Fidelity Investment's different accounts and maintain a diversified stock and bond portfolio that returns far more than annuities. I make changes from time to time.
    I watch American Greed too much, so an independent advisor scares me. How can you tell that he is on the up and up? Does he make his trades through a clearing house like Pershing? How do they provide you with monthly statements that you can trust?

    I have read some of your posts and I beleive you were in the investing business? There are those of us that don’t fully understand investing, so we are really gambling our future. I am 75 years old, so I am very close to going into all cash. I am starting to feel that another 2008 is on the near horizon.

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    #17
    A legit independent will have a custodian like fidelity, Schwab or TD Ameritrade to custody their assets. We use fidelity and they send the monthly statements to clients.

  18. #18
    I'm a fee only advisor like Janky and I currently use TD Ameritrade as my custodian. I had the chance to work and Edward Jones, Waddel Reed, etc but didn't due to the fact they push to many commission generating products which lead to them putting people in the wrong investments imo

  19. Member
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    #19
    How can I find a fee only advisor in my area? Also, is there a way to check them out to be sure they are good?

    We have a lot of fishing guides in the area where I live, but most of them are just unemployed boat owners.

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    #20
    Word of mouth is the best way. You can also go to the sec’s website and see if an advisor has any disclosures.

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