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Can someone tell me under what circumstances investments like these would be appropriate? Also, the risks? I've generally heard to stay away from VPS, but they must serve some useful purpose for someone.
VAs are only useful if you live forever and run out of money. But... if your time horizon is that long, you might as well reap the time advantages of a balanced portfolio.
The risks are fees, the opportunity costs of a fixed income and the insurance company's solvency.
For something safe with a built-in COLA, look into the dividend achiever index. It only includes companies that consistently increase their dividends. My largest holding recently announced a 15% increase in the dividend, and has averaged 10% per-year increases for more than 30 years. That doesn't happen with VAs, and is great for retirees.
i would sooner use immeadiate annuities later on in retirement as a form of longevity insurance than any kind of variable annuity.. i did a cost analysis a while ago on city data on a variable one the bank tried to sell me. if anyone likes i will find the thread.
i would sooner use immeadiate annuities later on in retirement as a form of longevity insurance than any kind of variable annuity.. i did a cost analysis a while ago on city data on a variable one the bank tried to sell me. if anyone likes i will find the thread.
I remember that thread, MJ, which is why I wondered about the TRP menu of VPs. Just curious - some people must find these vehicles useful, but any smart money person I've heard or read usually is opposed to them. So - it's a sucker play, generally? Guy at my bank tried to sell me something like this two years ago, also.
Don't succumb to the simplifying temptation of pigeon-holing everything. The world isn't either black or white, and variable annuities aren't either good or bad. They do a good job of meeting some objectives of some investors, while faring not at all well in meeting the needs of some other investors. Above all however, they are complicated products. Choose carefully. Invest in what you know. Never invest in something you don't fully understand.
i bet if those investors can figure out the fee structure on them they won't be so happy. even the fidelity and vanguard ones which are considered low cost are pretty high once you are able to understand the expense structure and most important the structure of your returns.
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.
thats where it got interesting.
i asked if i could take that guaranteed money out after the surrender period . heck a doubling in 10 years would be an amazing return if i could cut and run with the dough.but of course you cant. you can only take out your actual returns,not the bonus bucks.
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?.
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