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If this is what she has, then she has a savings product that will give her a six percent return on her initial investment at least, and that she can probably take out fully with no penalties at the end of the term (usually 5 or 7 years).
Annuities are generally very safe and should never be more than one of many vehicles in a retirement or savings plan. But they beat putting money in a mason jar under the bed!
that is not the way this reads to me . to me it says she is getting a 6% return on her investment and can probably take it FULLY out . key words "fully out "
if she meant getting the underlying actual account out that was linked to the investments her mom made after the surrender charge period , then that is not what it says .
If I buy a $100,000 CD that pays 5% I receive $5000 per year in interest. When I am paid that 5% it DOES NOT get deducted from my principal. My principal stays in tact.
Show me a CD that earns 5% and I might start to take you seriously.
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In the case of this annuity , you and low are claiming I'm getting 6.5 or 7% return. The problem with that is that when I start receiving those payments that amount gets deducted from my principal....that is not the case with a CD
Best-case scenario, that CD is going to pay maybe 1.85%. So if mom needs to draw $11,542.83 in retirement, she's going to be out of money in 10 years.
She might also be out of money in 10 years with the annuity, but she'll continue to get the $11,542.83 every year until she dies. Plus, according to the information you posted, a death benefit of 120,134.01.
buying an annuity like this is done in a certain way .
follow this : this is called a deferred annuity . it means you are buying the annuity as income for a point you choose off in the future .
typically you buy it before retirement and let it grow either via the guaranteed growth rate or via the actual account balance from the investments .
so you buy it at 55 and let things grow for 10 years .
at 65 you are ready for the income . you get the higher as a base of either what your investments did or what the guaranteed account did .
so in this case the actual account did not do well and has 117k in it . that is all your mom has in her account ..
but the guaranteed account did better it has 164k in it . only that account is never your moms to take .
it is only used to generate an income . remember you buy an an annuity for income .
so at this point she gets to base her income on the 164k since it is higher and they will do one better . unlike if she was taking money out of her own account to live they will not reduce the virtual account every year by what she takes .
wow , that is a sweet deal , no reduction as she spends down in income .
but the money is still subtracted out of her actual account because she did get the money . they are just giving her a bigger base to base her income on than her investments gave her and unlike you or i spending down to live they will not take that amount off the virtual account
so you're saying that she can get 11 K per year for life even if she lives to 100? thats not what the broker said to me...i need to call her again...
Show me a CD that earns 5% and I might start to take you seriously.
Best-case scenario, that CD is going to pay maybe 1.85%. So if mom needs to draw $11,542.83 in retirement, she's going to be out of money in 10 years.
She might also be out of money in 10 years with the annuity, but she'll continue to get the $11,542.83 every year until she dies. Plus, according to the information you posted, a death benefit of 120,134.01.
The CD example was purely hypothetical...I know CD's arent paying 5%
your second point sounds great but conflicts with what the broker told me....need to call her again...
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If you would look at the cites that I posted concerning CIGNA selling their runoff to Buffett.
This type of annuity puts some of the return risk on the Ins/Annuity company. IOW they are sharing the risk with the annuitant.
As I have said either on this thread or another thread, if your Mom has a nice GLWB growth guarantee (5% compounding) and a nice Lifetime withdrawal benefit 5.5% on the Income Acct, the Ins/Annuity co, would put up little objections for your Mom to terminate the contract.
Disclaimer. We have a short series of GLWB FixedIndexed annuities, just finished their 4th contract year. We have a 5% Compounding Income guarantee growth and a 6.5% withdrawal guarantee on Income account at age 70+5 years holding (our 1st RMD, 3.5% required). In addition we can continue holding the contract for a total of 15 years at the 5% compounding, Plus an additional 0.5% withdrawal kickup for each 5 years of additional holding. We also bought the death benefit plus rider kicker (should've passed on the kicker). Can you see how the Annuity company can be on the hook for a lot of $ for a long time? Can you see why Mom may want to defer taking Income? Maybe Mom knows more about this than you think?
your welcome . see you are missing the most important figure . that is the one that determines how much a year she gets of the virtual account as an income draw .
are all the pieces of the puzzle starting to make sense to you now as far as how this works and why it is not a bad product when used for what it's purpose is , drawing a guaranteed income for life ?.
depending how long you delay the income draw gets bigger and bigger but so does the risk of dying so ideally you want a balance
your welcome . see you are missing the most important figure . that is the one that determines how much a year she gets of the virtual account as an income draw .
are all the pieces of the puzzle starting to make sense to you now as far as how this works and why it is not a bad product when used for what it's purpose is , drawing a guaranteed income for life ?.
depending how long you delay the income draw gets bigger and bigger but so does the risk of dying so ideally you want a balance
Yes. I still don't like it as an investment, but its another vehicle albeit complex. Shes 77 so I'm thinking of having her start taking the income now. Do you know if an investment like this would transfer from merrill lynch to schwab?
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Can you see why Mom may want to defer taking Income? Maybe Mom knows more about this than you think?
