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Thanks for the link. I have heard different opinions about the insider transactions. What has been your impression? Do you like "sales" as opposed to "buys" as an indicator?
that can be a minefield. many are over priced and poor long term deals.
the better ones just screwed the policy holders this week.
now having said that i think those that get educated on these new products coming out can latch on to amazing deals for the prices they charge.
as moshe milevsky the worlds greatest expert on these in my opinion predicted many were deals that were to good to continue.
well this week prudential announced they were pulling the plug on accepting anymore money from policy holders on 14 different annuities as they cant afford to keep these annuities going.
anyone who planned around a nice pensionized income from them and wasnt fully invested yet got the rug pulled out.
thats not say there arent situations a simple immeadiate annuity would really help portfolio success ,there are lots of ways to work one in.
but the annuities that link themselves to market performance and guarantee you something are running into problems .
i stated in another thread a few months ago that milevsky thought the guaranteed withdrawal benefit style annuities that guaranteed a withdrawal rate based on market performance rather than a return based on performance were the steal of the decade.
well those are the types of plans now insurers are closing down. milevsky was right . they were a steal for anyone who got in and fully invested in them. you can be sure the rest of us missed the boat as going forward those deals wont exist for what they were charging.
the lesson here folks is dont close your ears to the word annuities. there are amazing deals that crop up from time to time as they experiment with new products.
in this case we would have got an amazing value for the money if we got in before they realized they under priced it for what it gave you.
prudential says they will honor all contracts already out there with the deals presented.
I'll say it again though. For a non-market alternative the also avoids interest rate risk and longevity risk, a single premium immediate annuity (there are many varieties) can be a great retirement tool.
I do not agree that insurance companies just "screwed" people though. Screwing them would be to continue to wrecklessly write guarantees that they could not back up (due to current market conditions - mostly low rates) and then stop paying claims/guaranteed income. In the contracts that were sold there was a provision for these companies to limit/eliminate future contributions. That is exacly what they are doing. In doing so they are preserving all of the guarantees that current contract owners purchased.
It actually make a ton of sense. Just because you may have bought a 5% CD 5 years ago, you do not have the right to walk into the same bank today and add $50k at the same 5%.
the contracts have all the loop holes needed to protect the insurance company so yes it does say that they can make changes.
but it you were planning around your pension and your company altered your terms and changed your amount you thought you would get you think that was a crappy thing to do.
these folks already planned around these annuities as part of their strategy or pehaps their only income.
if they didnt get all their money into the plan yet now they cant . its very different then your cd analogy.
in this case it would be like the giving you a contract that says you can plan on putting money into this 5 year cd over the next 2 years and then telling you you cant put any more money in because we have an out..
but it you were planning around your pension and your company altered your terms and changed your amount you thought you would get you think that was a crappy thing to do...
So if a company pension changed the terms would I think it was crappy? Maybe - not unexpected in recent times though.
BUT the annuity company did not change the terms. The are operating within the terms of the original agreed upon contract.
Quote:
Originally Posted by mathjak107
these folks already planned around these annuities as part of their strategy or pehaps their only income...
Some may have. Many already had their annuity fully funded. IF they planned around having the annuity that would always be willing to accept unlimited new funds, the plan was a bad plan. Not to mention the fact that their are still many suitable replacements on the market today.
Quote:
Originally Posted by mathjak107
if they didnt get all their money into the plan yet now they cant . its very different then your cd analogy.
in this case it would be like the giving you a contract that says you can plan on putting money into this 5 year cd over the next 2 years and then telling you you cant put any more money in because we have an out..
Nope. It is not like that, because these annuity contracts have not stated anything close to that.
My opinion is you had folks counting on getting those annuities fully funded as its rare annuity contracts have actually utilized the loopholes and now they are changing that ability to fully fund.
Sure the insurance company has a right to do it but the bottom line is that right or wrong the buyer wont be seeing the deal they signed on for.
What they did in my opinion was give their own industry a black eye.
They finally had products that were at least defendable as far as not being an over priced rip off and they spoiled it for themselves by proving that the basis for entering into an annuity contract which is safe secure,dependable income is now anything but dependable.
Sure its their right not to accept existing contract holders money but it just adds fuel to the fire to stay away from annuties.
As one of the biggest advocates on these forums of utilizing annuities in your planning it just disturbs me that when taking an annuity contract that you can not count on the terms of that annuity contract being fullfilled as far as to what you bought it for in the first place.
Annuity products are complex,very difficult to understand and are filled with twists,turns and exceptions and is proving to the public once again that they are not as reliable for planning around as the industry wants you to think.
Heck if i wanted to take the market and interest rate risk that i may not see that income i wouldnt have turned to an annuity product in the first place.
If i thought the annuity company would alter my plan i wouldnt have planned around them in the first place and just continued to do my own investing 100%.
In view of this now i will not advocate anything with the words guaranteed attached to it when it comes to annuity products.
Get where im going with this?
Last edited by mathjak107; 09-19-2012 at 06:58 PM..
one other thing i want to mention is these products throw the words "guaranteed " around like there are no loop holes and thats an issue i have.
some of those products were called GWIC. guaranteed withdrawal income contracts. others were marketed as guaranteed income . others offered guaranteed minimum withdrawals regardless of balance . some offered guaranteed returns .
its like the deals you sign up for are only the deals and only guaranteed until they are not.
its not only the addition of new money at prudential that is a problem but other annuity companies like axa and transamerica sent letters to policy holders to offer them cash added to their accounts instead of some of the guarantees they offered as part of the deal.
as forbes said about the situation going on "annuities are marketed as if they were a marriage contract and you were getting a life partner.
Instead, annuity benefit holders signed up for a partner that doesn’t realize these promises they’re struggling to keep are the only reasons you wanted them in the first place. Is this still sounding like a great relationship to have ‘till death or insurer insolvency do you part?"
in prudentials case you got engaged by signing a contract to eventually be married to them and now you cant even consumate the marriage because they stopped you in mid stream from finishing funding it. now your told go find another spouse .
like i said whats going on is a huge black eye for an industry whos mantra is safe, secure , dependable income,. while no one lost a penny yet lots of policy holders are now being told the deals they thought they were getting that are the reasons they took the product and paid those fees and commissons are no longer going to be the deals.
lets look at some of these deals up close and personal as i have been studying a few of them to try to understand the tangled web.
i told this story a few times ,when we renewed a cd at the bank i got pitched a variable annuity by them.
since rates are so low they wanted me to talk to the fellow in charge of renewing the cd's who just happened to be their annuity salesman.
i have to say it sounded so good i almost bought it myself lol.
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 5% or 10% min depending which i took. . if i died my wife gets to continue the plan and she gets the 5% minimum option.
this is where it got interesting.
i asked if i could take that money out and of course no you cant.
that 10% a year guarantee are only bonus bucks good towards an annuity conversion into a lifetime income stream..
however heres the catch. you pay expenses on your average yearly account value. 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 to add to the plan each one increasing costs as well.
as best as i could tell 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..
is that an amazing fee structure for the un-aware?.
those bonus bucks are only good if at the end of the investment stage i annuitize into a lifetime income stream locking in more expenses on the payout for life.
folks becareful of these offers. we guarantee you a 10% a year minimum regardless of what your investments do isnt exactley as you think it is.
it took me hours to dechipher that annuity to really see what was going on.
i also saw the offering for a met life variable annuity too. it spanned 500 pages,. i didnt even bother reading that one.
Last edited by mathjak107; 09-20-2012 at 02:53 AM..
so what about the low cost annuities from fidelity and vanguard? they offer lower cost but they still arent there yet in my opinion.
fidelity and vanguard ones are still very costly.
they both work the same way pretty much so lets look at the fidelity variable annuity which offers a 4-6% guaranteed payout depending on age .. and if the markets do better and your account balance is higher than you started with you only go up from there.
sounds great right? so lets take a closer look.
if you check the total annual annuity fees and fund expenses from fidelity for that the guaranteed income on their variable annuity ,they are taking back about 3% a year from your return in expenses for an annuity that passes to a spouse .
couple that with a 4-6%minimum guaranteed payout depending on age when you draw your income and that just about assures if the markets achieved their long term average return ,at best you will always only get the minimum payment. your spending down the almost 3% a year in expenses plus pulling 4-6 % withdrawals a year while historically getting 7% return..
they tell you your annuity withdrawl can increase with the markets over time but that almost cant happen by design.
since your balance will by design always be worth less then you gave them after the payout and expenses ,you are pretty much locked into the minimum payments forever. a 100k put in the annuity, after 30 years at 8% will only have a balance of 84k left if markets even achieved 8% . since thats less than you started with your never going to earn more than the minimum. the fund managers would have to do better than the 8% historical return for that mix of stocks and bonds. thats more than likely not happening.
the way fidelity comes in 1% or so less than others in fees is there is no guaranteed minimum death benefit that most others have built in either. to equal that option you need a seperate life insurance policy.
as you see annuities are a minefield to deal with and figure out when they dont alter the terms ,they become a totally different playing field once they do so do your homework on these and dont take a salesmans pitch for face value.
if you want a quick way to evaluate them ask to see the salesmans investment portfolio. if its such a great deal he should be owning mostly his own product.
any bets?
historically believe it or not nothing has worked out better for hypothetical retiree's over the last 100 years then 100% equities and just drawing down each year what you need regardless if markets are up or down.
that had the highest level of success since the gains in the up years far out weighted the drag of cash and bonds all the time over 30 year periods.
yep actually selling at a loss when you had to still had the 100% equities beat out systematic withdrawals from bonds,cash and annuities over a typical 30 year retirement time frame.
tooooooooooo volatile for my taste but it is what it is.
Last edited by mathjak107; 09-20-2012 at 03:56 AM..
My opinion is you had folks counting on getting those annuities fully funded as its rare annuity contracts have actually utilized the loopholes and now they are changing that ability to fully fund.
Sure the insurance company has a right to do it but the bottom line is that right or wrong the buyer wont be seeing the deal they signed on for.
What they did in my opinion was give their own industry a black eye.
They finally had products that were at least defendable as far as not being an over priced rip off and they spoiled it for themselves by proving that the basis for entering into an annuity contract which is safe secure,dependable income is now anything but dependable.
Sure its their right not to accept existing contract holders money but it just adds fuel to the fire to stay away from annuties.
As one of the biggest advocates on these forums of utilizing annuities in your planning it just disturbs me that when taking an annuity contract that you can not count on the terms of that annuity contract being fullfilled as far as to what you bought it for in the first place.
Annuity products are complex,very difficult to understand and are filled with twists,turns and exceptions and is proving to the public once again that they are not as reliable for planning around as the industry wants you to think.
Heck if i wanted to take the market and interest rate risk that i may not see that income i wouldnt have turned to an annuity product in the first place.
If i thought the annuity company would alter my plan i wouldnt have planned around them in the first place and just continued to do my own investing 100%.
In view of this now i will not advocate anything with the words guaranteed attached to it when it comes to annuity products.
s
Get where im going with this?
Sure. I know where you are going, it's just your words that I disagree with. The terms as you mention above ARE being fulfilled by the annuity issuers.
Again, to allow future, unlimited additions would put past and future guarantees at risk of NOT being paid. THAT would be a black eye for the industry which I think you'd agree would be much worse.
its not only the addition of new money at prudential that is a problem but other annuity companies like axa and transamerica sent letters to policy holders to offer them cash added to their accounts instead of some of the guarantees they offered as part of the deal.
Yes this is an interesting ne offer. I am looking forward to seeing how much cash is offered in exchange for dropping the guarantees.
No one HAS to take the offer though. If you want to keep your current guaranteed contract you are welcome to do so. You can bet the offers will be good for the insurance companies otherwise they wouldn't offer them. How good they will be for the clients remains to be seen.
Say a client bought an annuity and liked all of the protection that got them and kept them in the market. Maybe today the cash value if $150k but they have some "phantom" guaranteed value of $200k which only be accessed though an income stream or if they die.
If they are 60 today and company X offers them 20k lump sum on top of their 150k cash value, would that be a good deal for someone. Sure - it just depends on the clients wants and needs.
but like i said the industry already has a terrible reputation. they counted mostly on snagging the unsuspecting client who knew little about the structure and expenses of most annuities.
ill keep immeadiate annuities out of the discussion since they are just fine as is . but its all the others that have to be put under a microscope.
the early annuities were just awful products. they should never even have allowed some of those older ones to be sold.
the more recent ones were finally starting to shape up as best as i could make out in a prospectus that can span 500 pages on some of them.
many had interesting guarantees that actually started to look usefull as part of a total retirement portfolio.
well the reason they started to look to good is because the actuaries figured them wrong and they were to good.
so now the industry has to do what it has to do ,put its tail between its legs and with head hung down go back to the drawing board and try to do it again.
the problem is each time they lose more and more clients and supporters.
not that they care but they now lost me as a champian on various financial and retirement forums .
i can no longer recommend products that have problems delivering the goods. especially when they are the part of the portfolio dedicated to supplying the stable, dependable and secure income streams that can have other parts of the portfolio molded around it.
conservative portfolios developed alot better chance of success when annuity income was introduced in the amount of 20-25% of the portfolio.
but if its iffy as to whether you will get the amount your counting on then the plan may lose its strength because everything is dependent on everything else.
for now my recommendations i give for adding annuities is being reserved until they can better construct plans that are worth the money,sustainable and can deliver without fail what retirees counted on.
Last edited by mathjak107; 09-20-2012 at 05:00 PM..
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