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I'll second that advice. It's an easy product to understand and make comparisons between different insurance companies. Be sure to look at the ratings of the underwriting companies too, of course.
some are deferred fixed annuities so you buy them 9 or 10 years earlier , they have a growth component like interest , then you annuitized them . they can be very deceiving though as to how they work .
they are not like immediate annuities .
some have a virtual and actual account balance and you have to really understand the product
Thanks. I'm pretty sure if I ever go this route it will be an immediate, fixed annuity so I know exactly what to expect.
immediate annuities are simple and have no hidden traps and fees .
but like i said you give them 100k and they give it back to you over 18 years at the rate of 5500 a year right now . in this case your roi after 19 years is actually .003% since in 19 years you actually got 5500 dollars that was not your own money that you gave them .
so there really is no roi until you go on the insurers dime . you are trading interest rate and market return risk for longevity risk .
the worst are variable annuities . oh man these can be a minefield. there are even fixed income ones .
i looked in to a fixed income index annuity from prudential a few years ago . it sounded great . you get a guaranteed 5.50% or the value of your account that is linked to a bond index .
rates at the time were 1% in cd's so it sounded great .
but when you really looked under the hood it was a bit better than a cd.
the problem is these products are so complex and very easy to sell to you because they all sound so good .
i posted the details of it a few times but if anyone wants to see the pitfalls i will re-post it . it applies to most variable annuity products so they all work the same . there is a virtual account value good only for annuitizing that gets this money with the guarantees but you can never access it or see it's full value and then you have your actual account linked to the index or investments which of course has about 3% coming out right off the top as expenses .
in this case a bond index at that time was lucky to provide 3% in total so the only account you would end up using is the one with the guaranteed min of 5.50% .
only the way it is doled out is anything but 5.50% .
like i said , if anyone wants to see this again i will post it as well as how to make your own index linked cd's like the article above talks about
keep in mind when you get involved in variable annuities the guaranteed amounts are always inclusive of fees and expenses . the variable parts are not. they can easily have 3% a year taken so it makes it very hard for a annuity investment to beat the guaranteed portion .
once you annuitize and start spending down the fees on a declining balance can really wipe away any benefit. so usually it is the guaranteed side that ends up being what your draw is based on not the investment portion .
Are your hidden traps limited to variable annuities? I've looked at fixed rate, they seem pretty clear to me. Including fees you realize a payment of a little over 5% which is certainly better than a 4% withdraw if the goal for this money is to produce income.
Are your hidden traps limited to variable annuities? I've looked at fixed rate, they seem pretty clear to me. Including fees you realize a payment of a little over 5% which is certainly better than a 4% withdraw if the goal for this money is to produce income.
As previously said these products can be extremely complex. It's all about the fine print so make sure you are working with a financial advisor who specializes in them. The better ones can provide a guaranteed future rate of return that cannot be duplicated by any other investment vehicle.
At age 52 on 6/18/2008 I invested $150,000 of my IRA (about 20% of the value at the time) in a fixed index annuity with a lifetime income rider. My reasoning was that as a self employed person I wanted to construct a pension-like guaranteed income flow as part of my portfolio. At age 70 on 6/19/2026 I will receive $38,500/year for life. The yearly payments are deducted from my account value at the time of the withdrawal. If I die before the account is depleted my heirs inherit what remains. If I live long enough and the account value is depleted my payments continue until my death.
I believe President Obama was thinking about legislation that would make retirees buy an annuity with their IRAs or 401k's like some here are considering.
Vanguard offers low cost immediate and deferred annuities through a broker or insurance company. To me, the quality of the underlying company is key. I had a deferred annuity through Charter Life, but it failed. Luckily NY has a fund that makes good the annuitants' stakes.
Prudential comes to mind. I'm sure there are others that are relatively safe. But, they are not risk free. Don't be lulled.
And others have commented that Vanguard's fees are not the low cost they were in the past
Years ago Scott Burns--the financial advisor who was advocate of low-fee, diversified investments like Bogle's POV--wrote article about including annuities in a retirement plan.
You can search it on his site--Assetbuilder--some info could be out of date since it has been quite a while from publication--
I believe the three companies he recommended were Vanguard, Fidelity, and TIAA-CREF for low cost annuities...
As previously said these products can be extremely complex. It's all about the fine print so make sure you are working with a financial advisor who specializes in them. The better ones can provide a guaranteed future rate of return that cannot be duplicated by any other investment vehicle.
At age 52 on 6/18/2008 I invested $150,000 of my IRA (about 20% of the value at the time) in a fixed index annuity with a lifetime income rider. My reasoning was that as a self employed person I wanted to construct a pension-like guaranteed income flow as part of my portfolio. At age 70 on 6/19/2026 I will receive $38,500/year for life. The yearly payments are deducted from my account value at the time of the withdrawal. If I die before the account is depleted my heirs inherit what remains. If I live long enough and the account value is depleted my payments continue until my death.
I don't think anyone would be lucky enough to capture that same annuity today
I believe President Obama was thinking about legislation that would make retirees buy an annuity with their IRAs or 401k's like some here are considering.
Vanguard offers low cost immediate and deferred annuities through a broker or insurance company. To me, the quality of the underlying company is key. I had a deferred annuity through Charter Life, but it failed. Luckily NY has a fund that makes good the annuitants' stakes.
Prudential comes to mind. I'm sure there are others that are relatively safe. But, they are not risk free. Don't be lulled.
Read an article about an investment company that is attempting to establish a process for individuals to buy into annuities like they make 401K incremental investments
Don't remember too much about the name but they have two insurance companies at the moment who are the platforms carrying the investments...
So that people can create their own pensions going forward in addition to SS
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